There are 3 basic types of leases used in Commercial real estate. They are all complex documents but can be understood when you have some background about the terminology associated with each of them. The three types of leases are:
1. Gross Lease
With a gross lease, also known as a full service lease, the rental rate includes all of the operating expenses for a property, such as the utilities, maintenance, property taxes and property insurance. If these expenses increase over the term of the lease, the landlord typically passes through the incremental cost to the tenant as “additional rent”. Many office buildings use a Gross Lease.
2. Net Lease
With a net lease, base rent is typically lower but the tenant is also responsible for the cost of some or all of the expenses. There are three kinds of net leases that you need to be aware of:
– Single Net Lease. This type of lease requires you to pay a fixed base rent, your proportionate share of the landlord’s property taxes and utilities expenses. The landlord covers the costs of property insurance and common area maintenance expenses.
– Double Net Lease. This type of lease is identical to a single net lease, except you are required to pay your proportionate share of the landlord’s property insurance premiums, leaving the landlord responsible only for common area maintenance expenses.
– Triple Net Lease. This type of lease is identical to a double net lease, except you are required to pay your proportionate share of the landlord’s common area maintenance expenses. This type of lease is commonly used for most retail properties and many industrial properties.
3. Modified Gross Lease
Also known as a modified net lease, you are assessed a fixed base rent and then a portion of operating expense costs. The way that these costs are shared and calculated will vary from lease to lease.
Understanding complex lease documents can be a challenging process. Working with an experienced commercial real estate advisor specializing in tenant representation can help to ensure that you have access to the right tools and knowledge to be able to calculate what exposure your company could have both in the near- and the long-term. Give us a call at 314-821-0085 or email doug@howardcommercial.net
