For many new business owners, leasing a commercial property may seem like simply renting an apartment. A tenant agrees to pay the property owner a certain amount each month. However, leasing a commercial property is more complex, although an understanding of the basic types of leases will help new entrepreneurs negotiate well.
In general, there are four different standard commercial leases and a variety of abbreviations that can have different meanings and usage depending upon who is using them. With commercial leases, there are four basic structures that define what a lessee is responsible for in addition to the rent each month. In addition, the leases define the responsibilities of the lessor (property owner).
Net Lease, Single Net Lease
The lessee pays only the utilities and property tax. The landlord pays for repairs, maintenance and insurance.
Double Net, or Net-Net Leases
The lessee pays for utilities, insurance premiums, and property taxes on the building. The lessor pays for maintenance and repairs.
Triple Net Leases
The lessee pays for all expenses of the building, although the lessor is responsible for structural repairs.
Modified Gross Lease, Full Service Gross Lease
The lessee and lessor split operating expenses (property insurance, property taxes, utilities, and common area maintenance (CAM) and structural repairs.
Modified Gross and Full Service are the most typical leases for multi-tenant buildings. With these types of leases, the rent does not increase in relation to an increase in operating expenses; conversely, the rent does not decrease if operating expense decrease. The distinction comes down to the definition of “gross” used in the specific lease, which can exclude or include certain operating expenses. If fact, in can be common to see all utility or janitorial costs paid for by the tenant separately. This additional rent derives from the formula in the lease that determines the quantity and types of operating expenses paid by the lessee that may increase over the term of the lease.
If you are a new business owner seeking skilled, knowledgeable help in finding commercial property and negotiating a lease, contact us at Menlo Commercial Real Estate to be connected to a professional commercial broker. Our number is 480.659.1777, and our email address is firstname.lastname@example.org. We look forward to hearing from you!