Simple Guide to Commercial Real Estate Leases: What You Need to Know

 

Due to the pandemic, landlords of commercial real estate for lease are offering more concessions to prospective tenants in order to get them in the door. This means now is as good a time as ever to find your new commercial location for your business.

If you’re looking for commercial real estate for rent, but are unsure of the different commercial real estate leases available, then this quick guide will help. Keep on reading to learn more.

Gross Lease aka All Inclusive Rent

This type of lease means the tenant agrees to pay the base rent (usually an existing mortgage payment or the building’s operating costs). The landlord will then usually cover building expenses, like maintenance fees, real estate taxes, insurance, etc.

Net Lease

With a net lease, the tenant usually pays a chunk of the building’s operating costs. These include maintenance fees, insurance, and real estate taxes. There are three types of net leases—single, double, and triple.

Single Net Lease

In this lease, the tenant covers rent, utilities, and property taxes. The landlord agrees to cover building maintenance costs and insurance.

Double Net Lease

A double net lease stipulates that tenants pay for rent plus utilities, building insurance, and property taxes. The landlord agrees to pay for any building structural maintenance costs.

Triple Net Lease

All the buildings operating costs are paid by the tenant, plus rent and utilities. Because the tenant takes on all the expenses, the rent can oftentimes be negotiated at a lower price than with other terms.

Modified Gross Lease

Details will vary from contract to contract when it comes to a modified gross lease. Typically, tenants agree to pay for base rent plus utilities, and a part of the operating expenses.

However, in some modified gross leases, tenants only pay base rent and utilities for the first 12 months. The operating costs would then be pro-rated as additional years go by.

Absolute NNN Lease

Not to be confused with the triple net lease, an absolute NNN lease removes the landlord from any and all expenses. This means the tenant is responsible for all building operating costs, including any major maintenance or repairs that might be needed over time.

Percentage Lease

A percentage lease is a bit more interesting than the other leases discussed so far, as it involves a percentage of sales used as part of the monthly payment. A retail store, for example, might pay 5% of sales in addition to base rent.

Negotiating Leases

When at the negotiating table, the first thing to consider is how long the lease is for. Shorter leases with an option to renew will allow you to back out in case the location proves unfavorable, or you have plans to relocate eventually.

A longer-term lease gives you more location security. If your business is looking for a stable spot to set up shop, a long-term lease in a choice area is worth it’s gold.

Regardless of how long you need the lease for, research how much comparable rents are going for in the area. If given an option to renew, negotiate a cap on how much rent can go up each renewal period.

Before signing any dotted lines, look for any hidden costs you might not have seen. Need help looking over a contract? Contact a trust real estate firm like Lees & Lees.

Commercial Real Estate Leases 

Your business goals will ultimately help you determine which of the above commercial real estate leases is for you. Keep a win-win mentality when negotiating terms within the lease, and both you and your prospects will walk away feeling good about the deal. And when in doubt, use a trusted real estate attorney for any legal advice.

Find this article helpful? Check out our blog section for other useful topics to read about.

 

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