When dealing with commercial real estate, it is imperative to understand the types of lease agreements available. Commercial lease agreements are contracts between a landlord and tenant that outlines the terms and conditions of renting a space for business purposes. There are four primary types of commercial lease agreements, each with its own unique features and benefits.
1. Gross Lease
A gross lease, also known as a full-service lease, is a type of lease agreement where the landlord is responsible for paying all operating expenses for the property. This includes utilities, maintenance, and property taxes. The tenant only pays a flat rent fee, and the landlord covers all other costs. This type of lease is commonly used in multi-tenant office buildings and retail spaces.
2. Net Lease
A net lease is a type of lease agreement where the tenant is responsible for paying a portion of the operating expenses. This usually includes property taxes, insurance, and maintenance costs. There are three types of net leases: single net lease, double net lease, and triple net lease. In a single net lease, the tenant pays the property taxes in addition to rent. In a double net lease, the tenant pays property taxes and insurance in addition to rent. In a triple net lease, the tenant pays property taxes, insurance, and maintenance costs in addition to rent.
3. Percentage Lease
A percentage lease is a type of lease agreement where the tenant pays a base rent fee plus a percentage of their sales revenue. This is common in retail spaces where the landlord wants to benefit from the tenant`s success. The percentage rate is negotiated in the lease agreement, and it is usually lower for established businesses and higher for new businesses.
4. Modified Gross Lease
A modified gross lease is a combination of a gross lease and a net lease. In this type of lease agreement, the landlord and tenant agree on a base rent fee, and the tenant is responsible for paying a portion of the operating expenses. The operating expenses can include utilities, insurance, and maintenance costs. This type of lease is most common in office spaces.
In conclusion, understanding the types of commercial lease agreements is essential when leasing a commercial space. Each type of lease agreement has its own unique features and benefits, and it is important to choose the one that best suits your business needs. By understanding the differences between these four types of lease agreements, you can make an informed decision that is right for your business.