In the realm of commercial real estate leasing, there are numerous lease types, each carrying distinct responsibilities and obligations for landlords and tenants. As a tenant, the lease you choose has a direct impact on your rent and additional costs. Given that office leases typically extend for five years or more, it is crucial to select a lease that aligns with your firm’s needs.
While commercial property leases encompass various categories such as retail, office, industrial, and land, we will focus specifically on office space leasing. Generally, office leases fall into two primary categories: gross leases and net leases. These categories can be further divided into subtypes, which determine the financial responsibilities of both tenant and landlord. In both types, tenants pay a base rent for the space, while the specific lease type determines whether tenants or landlords are responsible for operating and additional expenses. If you find this information overwhelming, don’t worry! We will guide you through the various lease types to help you understand your options.
- Gross Lease
- Fully Serviced Lease/Full-Service Gross Lease: In this lease type, tenants only pay rent, while landlords directly cover most, if not all, expenses included in the rent. The monthly payment encompasses operating costs like utilities, maintenance, repairs, and other building-related expenses. Think of it as a single, all-inclusive fee for using the space. The main advantage of a gross lease is the known, fixed rental amount, regardless of usage. This predictability can be especially beneficial during months when air conditioning is essential, such as the summer season.
- Modified Gross Lease: Similar to the full-service gross lease, this type allows for more flexibility to accommodate the needs of both landlord and tenant. The rental payment is still a fixed lump sum, but additional fees can be negotiated. Negotiations play a significant role in determining which additional expenses tenants are responsible for and establishing the rental amount. Consider this lease type as a middle ground that caters to both parties’ requirements.
- Net Lease
Net leases typically favor landlords and should always be subject to negotiation. Under a net lease, tenants are responsible for paying the base rent and, in some cases, a portion or all of the uncommon costs associated with using the building. These costs usually fall into three main categories: maintenance, insurance, and taxes. There are three types of net leases, each with a different allocation of payment for expenses:
- Single Net Lease: In this scenario, tenants are responsible for paying property taxes in addition to rent, as the burden of property taxes shifts from the landlord to the tenant. However, the landlord remains accountable for operating expenses. Although less common, other net lease types place more costs on tenants.
- Double Net Lease: Under a double net lease, tenants are accountable for rent, property taxes, and insurance. The landlord retains responsibility for maintenance expenses.
- Triple Net Lease: Named after the three expense categories tenants are responsible for beyond the base rent, a triple net lease requires payment for property taxes, insurance, and maintenance. Tenants bear all expenses and costs associated with the leased space.
If you have further inquiries about the various lease types available for office spaces, please do not hesitate to contact our firm. We specialize in providing detailed breakdowns of lease structures, clarifying your payment obligations, and determining the lease options that best suit your business’s evolving needs.