Preparing to Execute a Commercial Real Estate Lease? Get to Know These Common Lease Types
Whether you are a commercial property owner with a new tenant or a business contemplating a new location or seeking the confidence of continued operations, knowing about the types of commercial leases available can help you move forward profitably and securely.
Commercial leases come in three main types with each having subtypes: gross, percentage, and net leases. All are legally binding agreements between a landlord and a tenant and grant a specific set of rights related to a space, with those rights typically extending beyond basic occupancy.
For property owners and businesses, the benefits of one lease over another can vary depending on a number of factors. Having an experienced real estate professional on your side to guide you can make the difference between a profitable agreement and a legally binding nightmare.
Here’s a rundown of the main types of leases you may encounter when leasing commercial space:
Full service/gross lease: In this lease, the tenant pays a fixed rent each month, with the landlord responsible for all over costs, including those related to operations and maintenance, which may include insurance, utilities, management, and taxes.
Net lease: An agreement between the landlord and tenant in which the landlord pays rent in addition to additional costs both parties agree upon. There are three types of net leases: Single, double, and triple.
Single net lease: The tenant is responsible for base rent payment, plus additional expenses associated with the property, such as utilities, insurance, landscaping, repairs, and more. This lease is usually used by landlords who want to ensure that their property taxes are paid on time.
Double net lease: Here, the tenant is responsible for base rent, property taxes, and building insurance. The landlord is responsible for utilities, maintenance, and other related costs. These are often used in multi-tenant buildings.
Triple net lease: Typically favored by commercial landlords, this lease makes the tenant responsible for the majority of costs including base rent, property taxes, insurance, utilities, and maintenance, and may include standard property repairs such as roof leaks and backed-up sinks. Usually, base payments are lower on a square foot basis.
Modified gross lease: This is similar to a full-service gross lease, except the tenant is responsible for incremental increases in the building owner’s operational costs. For example, if taxes go up, the tenant may have to chip in to cover part of the increase.
Absolute NNN lease: Also known as a bondable lease, this is an agreement between the commercial property owner and tenant where the tenant is responsible for both the monthly rent and all expenses, from roof leaks to tree trimming and from taxes to trash collection.
Percentage lease: Often used by restaurants and retailers, with this lease, the tenant pays a base rent in addition to a percentage of the business’ gross income, with that percentage agreed upon by both parties in advance.
Need Help Successfully Navigating Commercial Leases?
With so many lease options available, you need sound advice from a team of trusted professionals. The Giles Group has commercial real estate experts with years of experience navigating leases for both owners and renters. We understand the fine distinctions between the various lease types and our client-focused approach and extensive connections provide unique opportunities for both owners and renters.
Based in Franklin, Tenn., and serving all of the greater Nashville and Middle Tennessee area, we are commercial real estate pros adept at brokerages, leasing, and advising. Get in touch with a leasing expert today for help with commercial leases of all kinds.