A good tenant/landlord relationship is built upon a solid lease. From a residential standpoint, the lease is straightforward. On the commercial side of things, however, the lease can be quite a bit more complicated.
Since commercial properties accommodate a wide array of industries and businesses, it’s important the lease agreement factors in all the variables that could affect rent. Below, we discuss the four common types of commercial leases and how they work.
1. The Gross Lease
Often called a full-service lease, the gross lease is a fixed monthly payment that might include the tenant paying utilities as well. None of the other expenses related to maintenance is the tenant’s responsibility, however.
This isn’t to say that these expenses aren’t passed onto the tenant, though. Referred to as the “load factor,” rent would be quite a bit lower if this load factor didn’t exist. In instances where common areas such as lobbies require maintenance, these costs are passed on to the tenants via higher rent.
2. The Triple Net Lease
Not especially attractive to tenants but highly beneficial to landlords, the triple net lease passes on the majority of expenses to the tenant. Besides rent, the tenant is responsible for taxes, insurance, and any maintenance costs for the property.
If a tenant shies away from a triple net lease, a modified net lease might be more attractive.
3. The Modified Net Lease
The modified net lease is a combination of the gross lease and the triple net lease. This lease is designed to suit both landlord and tenant as needs vary. One variation of this lease may require the tenant to only pay rent the first year but then pay rent plus a percentage of the operating costs after that.
This lease is especially beneficial for new businesses who may need a year or more to get on their feet.
4. The Percentage Lease
The percentage lease requires that the tenant pay a base monthly rent payment plus a percentage of the business’s monthly sales volume. This type of lease agreement works well for most retail businesses, although the location and type of business may have a direct effect on how much a tenant pays.
For instance, a Christmas shop won’t have as many sales in the summer as it does in November and December. The percentage lease allows the tenant to pay less in slow times and higher payments when business is good.
Many factors play a role in the commercial lease. The four types listed above are the most common, with landlords and tenants making adjustments as necessary to suit their individual needs.
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