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An Overview of the Different Types of Real Estate Commercial Leases

An Overview of the Different Types of Real Estate Commercial Leases

Taking out a real estate commercial lease for the first time can seem overwhelming, especially if you’re not familiar with the different types of leases out there. Here are some things you need to know about commercial leases that will make the process a little less stressful for you.

Gross Lease

The most common type of commercial lease is the gross lease. A gross lease is one in which the tenant pays rent, and the landlord is responsible for taxes, maintenance and insurance. The terms of a gross lease may or may not include utilities. The advantage of a gross lease is that it is easier to calculate expenses; however, they normally include escalation clauses to offset increases in taxes and insurance. As such, it’s important to plan ahead for possible increases to ensure you are not caught off guard by them.

Fixed Lease

A fixed lease allows for a set amount of rent over a certain period of time, and does not contain an escalation clause. This type of lease is beneficial to small business owners and new startups that might be devastated by the escalating rent in a gross lease. Even so, there could be sharp increases at renewal that would leave you having to choose between absorbing the cost or relocating elsewhere.

Net Lease

With a net lease, the tenant pays rent, and is also assessed an additional amount for taxes, insurance and maintenance. The amount charged will depend on whether it is a:

Single net lease, which requires you to pay taxes on your portion of the property
Double net lease, which accounts for taxes and a proportional amount for insurance
Triple net lease, in which taxes, insurance and maintenance costs are borne by the tenant
Generally speaking, the more desirable the property is, the more likely the landlord is to offer a single, double or triple net lease. While a net lease requires more out-of-pocket expenses, tenants are also less likely to be caught off guard by escalating rent, as is the case with gross leases.

Deciding between the different types of commercial leases requires you to carefully consider the pros and cons of each one. That’s where a professional service such as ours can come in handy. For more information, contact us.