What Are the Different Types of Commercial Leases, and What Is the Best One to Have?
We’ve written about commercial leases several times now, so you are likely well aware of how complicated the commercial real estate space is.
It doesn’t matter if you’re a professional or completely new to the commercial real estate market. The fact remains the same — it’s vital for you to familiarize yourself with the different types of commercial leases.
By knowing all the ones you can use, you’ll know which to apply for a specific occasion. However, since we have been in this business for a long time, we will also tell you exactly which one is the best to have for each occasion.
The Percentage Lease
As the name slightly implies, the percentage lease is based on the tenant paying base rent and an additional percentage.
The base rent is the amount the tenant has to pay each month. It includes the rent and other additional fees if there are any. As for the other figure, it’s a predetermined percentage of the sales you make from the property.
The need for the percentage explains why the percentage leases are usually used for retail businesses and malls. By having a percentage lease, the landlord will always stand to profit from renting the actual property, as well as a part of the sales generated through the use of the property.
The Net Lease
Net leases are the most common ones used for any commercial real estate. With these leases, the tenant has to pay the base rent as well as a part or all of the taxes, maintenance, and insurance.
If you are a landlord, you will benefit the most from these types of leases, as you stand to win the most from them. Plus, you get to place some of the risks on the tenant, giving them an extra incentive to make the most of it.
Additionally, it’s important to note that there are several types of net leases:
- Single net lease — rent plus one of the three previously mentioned operating costs
- Double net lease — rent plus two of the three operating costs
- Triple net lease — rent plus all three major operating costs
In the end, there is also the less common absolute net lease where the tenant has to pay the rent and all other operating expenses, not just the three major ones.
The Full-Service Gross Lease
The previous two commercial real estate leases usually benefit the landlord. If you are the tenant though, you’ll be pleased to know that the full-service gross lease is the one that will benefit you the most.
In this type of lease, the landlord has to pay most of the usual costs, and sometimes all of them. With most contracts, these costs include maintenance, property taxes, and insurance. The tenant only pays the rent.
However, if there is an expense stop in the lease, that means that the landlord will only have to pay these expenses up to a certain amount. When the costs pass the amount, it will be the tenant’s responsibility to pay.
The full-service lease is usually used for offices and some industrial or retail properties.
In total, there are only three major types of commercial leases you need to know. Each has its benefits for the specific party, and each is modifiable, so you’ll have to negotiate the deal thoroughly if you want to get the best outcome.