At first sight, the commercial real estate renting process seems uniform and smooth. However, property insurance, taxes, utilities, maintenance, and all possible expenses are the issues that tenant and landlord should make clear. Therefore, understanding a commercial real estate lease necessitates attention and professional need from a realtor. Based on the agreements between tenant and landlord, the leases can be divided into the following three primary sorts: gross lease, net lease, and modified gross lease.
1. What is a Gross Lease?
A Gross lease, aka a full-service lease, means that the tenant is only responsible for the base rent. The landlord has to pay utilities and other expenses such as maintenance, taxes, and insurance. The homeowner offsets all the expenditures from the rent. Therefore, the lease amount is relatively high, but the sole cost goes to the tenant. People who want to avoid routine operations usually choose gross lease. They know how much they have to pay even when the total amount of bills changes.
2. Net Lease
For the Net Lease, you promise to pay a specific part of operating expenses in addition to the base rent. The base rent for net lease, therefore, is lower than a gross lease. There are four different types of net leases.
2.1. Single Net Lease
The single net lease requires that the tenant pay a set of rent, utilities, and a specific property tax percentage. It is the responsibility of the landlord to pay for property insurance and property maintenance.
2.2. Double Net Lease
The double net lease encompasses utilities, a set of rent, and some amount of property tax and insurance. The landlord, however, pays for the maintenance and repair of the common area.
2.3. Triple Net Lease
The triple net lease is considered one of the most common leases and is the opposite of the gross lease. In addition to base rent, the tenant accepts to pay for property insurance and taxes, utilities, and the property's operating expenditures. The triple net lease is lower than the gross lease because of the tenant's responsibility for utilities and other operating expenses.
2.4. Absolute Triple Net Lease
This is an exaggerated kind of lease. In this lease, the tenant takes all sorts of expenses, including repairs and maintenance. Absolute triple net lease saves the landlord from all responsibility. As a result, this is probably the rarest commercial real estate lease.
3. Modified Gross Lease
The modified gross lease is the third primary type of commercial real estate lease and occupies a middle ground between landlord and tenant. The modified gross lease allows both sides a broad negotiation range for the operating costs. In general, on the other hand, the tenant pays utilities, a base rent, and an absolute amount of operating expenses.
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