Understanding Different Types of Commercial Leases

Navigating the commercial leasing market can be a complex endeavor, especially for businesses unfamiliar with the various lease structures available. Each lease type comes with its own set of terms, responsibilities, and financial implications, making it crucial for tenants to fully understand what they are agreeing to before signing on the dotted line. Knowing the nuances of each lease type can help you negotiate more effectively and secure agreements that best suit your long-term success.

Full Service/Gross Lease

A Full Service/Gross Lease is a commercial lease agreement where the tenant pays a single, all-inclusive rent amount that covers not only the base rent but also the property's operating expenses. These expenses typically include property taxes, insurance, and maintenance costs, all of which are handled by the landlord. This arrangement simplifies budgeting for tenants, as they are not responsible for any additional expenses beyond the agreed-upon rent, which makes it an attractive option for many businesses.

Net Lease

A Net Lease shifts a portion of the property’s operational costs to the tenant, making it distinct from a Full Service/Gross Lease. This type of lease is categorized into three main variations:

Single Net Lease (N Lease)

In a Single Net Lease, the tenant pays the base rent along with the property taxes. The landlord remains responsible for covering insurance and maintenance costs. This arrangement reduces the landlord’s financial burden while keeping the tenant’s obligations relatively low.

Double Net Lease (NN Lease)

A Double Net Lease requires the tenant to pay the base rent, property taxes, and insurance premiums. While the landlord still covers maintenance costs, the tenant’s financial responsibility increases, leading to a potentially lower base rent compared to a Single Net Lease.

Triple Net Lease (NNN Lease)

The Triple Net Lease places the most responsibility on the tenant, who must cover the base rent, property taxes, insurance premiums, and maintenance costs. This lease type is common in commercial real estate and is favored by landlords seeking minimal involvement in property management. Tenants, however, must be prepared for the unpredictability of operating expenses, which can fluctuate and impact overall costs.

Modified Gross Lease

A Modified Gross Lease is a hybrid between a Full Service/Gross Lease and a Net Lease. In this arrangement, the tenant and landlord agree to share certain operating expenses. Typically, the tenant pays a base rent along with specific costs, such as utilities, property taxes, or maintenance, while the landlord covers the remaining expenses. This structure allows for flexibility and negotiation, enabling both parties to tailor the lease to their specific needs.

Absolute Lease

An Absolute Lease is a type of commercial lease in which the tenant assumes complete responsibility for the property, including all operating expenses, structural maintenance, and repairs. Unlike other lease types, the landlord has no financial involvement beyond collecting rent. This lease is often long-term and used for high-profile properties, where tenants seek total control over the property’s management.

Percentage Lease

A Percentage Lease is a unique type of commercial lease primarily used in retail spaces, where the tenant pays a base rent plus a percentage of their gross sales. This lease type aligns the interests of both the landlord and tenant, as the landlord benefits from the tenant’s success. The percentage paid is usually based on gross sales above a certain threshold, allowing the tenant to manage rent costs more effectively during slower periods.

Schedule a Commercial Lease Consultation

Choosing the right type of commercial lease is crucial to the success of your business. With so many options available, choosing the right type of commercial lease is crucial to the success of your business. If you're unsure which lease best suits your needs, contact us to schedule a consultation with LeaseHero. Our team of experts is here to help with a personalized consultation, where we can guide you through the process and ensure you secure the most advantageous lease for your business.

Previous
Previous

What Commercial Lease Clauses Should Tenants Be Aware Of?