Six Different Types of Commercial Leases

As business owners navigate the pros and cons of various office lease arrangements, it helps to become familiar with the lexicon of commercial real estate agreements. One of the first and most pivotal decisions will involve the type of commercial lease best suited for the owner’s needs.

Two primary factors should be considered when evaluating commercial leases. In most cases, different leases are better suited to certain business types. Leases are also categorized according to how rent and other costs are collected from the tenant. Below are a number of examples.

Net Lease. Used in any type of commercial setting, a net lease requires that the tenant pay a base rent plus some (or all) of the costs of insurance, maintenance, and taxes.

Double Net Lease. Under this type of net lease, the tenant pays rent plus taxes and insurance.

Triple Net Lease. With a triple net lease, the tenant pays rent plus taxes, insurance, and maintenance.

Percentage Lease. Typically used for retail businesses, a percentage lease requires the tenant to pay rent plus an established percentage of their sales.

Fully Serviced Lease (Gross Lease). This type of lease is most often used for office spaces, but can also apply to retail or industrial situations. The landlord pays most or all of the usual costs, while the tenant pays a set amount of rent each month. Of course, while the landlord does pay for most additional costs, those are typically passed on to the tenant via the “load factor.” In other words, the base rent is usually higher than it otherwise would be if the tenant were expected to share in other costs.

Modified Gross Lease. A variation on the Gross Lease, a Modified Gross Lease establishes a base rent which is paid by the tenant for an initial term. After that term has expired, the tenant picks up a proportional cost of insurance, taxes, or maintenance, as agreed upon in the initial lease.

Business owners who are navigating the differences between leasing situations will benefit from the guidance of an experienced real estate attorney. Give us a call, and we can help you weigh the benefits and drawbacks of each leasing type, and negotiate an agreement best suited to your business.

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