What Are the Different Types of Commercial Leases?
Not only is searching for a new space for your business a big decision, but taking out a lease agreement is also a significant step – especially when there are many different types of commercial leases around.
At Caversham Solicitors, we are well versed in helping all types of businesses acquiring commercial leases and are here to help you understand the differences before deciding on the right lease for you.
Different Types of Commercial Leases Listed
- Gross Lease
- Net Lease
- Modified Gross Lease
- Percentage Lease
- Ground Lease
1. Gross Lease
A gross lease, also known as a full-service lease, is just that. All of the property’s operating expenses are combined into one fixed rental amount, so this includes property taxes, insurance, utilities, and maintenance costs.
With one figure covering all of these different payments, tenants will benefit from predictable monthly payments without worrying about additional expenses. They also don’t need to worry about managing and covering the property’s operational costs because this will be the landlord’s responsibility.
2. Net Lease
Net leases are a little more flexible that gross leases; whilst they still require a base rent payment, they also include a portion of the property’s operating expenses that is decided upon by both you and the landlord. These different options are split into different net lease definitions which are:
- Single Net Lease (N Lease): Tenants pay a base rent plus property taxes.
- Double Net Lease (NN Lease): Tenants pay a base rent plus property taxes and insurance.
- Triple Net Lease (NNN Lease): Tenants pay a base rent plus property taxes, insurance, and maintenance costs.
The advantage to these different types of net leases is that the tenant is more in control over their occupancy costs.
3. Modified Gross Lease
Even more flexible is a modified gross lease; these agreements combine a gross lease and a net lease together. With this option, you will receive a base rent which covers some operating expenses or you will negotiate with the landlord to decide which payments are covered by which party.
Therefore, you will be able to customise the payments for both parties and tailor the lease to suit your specific needs and preferences, giving you more control over what you are paying.
4. Percentage Lease
A percentage lease agreement is based on the gross sales revenue of the business. The way it is worked out is the tenant will pay a base rent plus a percentage of their gross sales revenue to the landlord when the sales exceed a predetermined threshold.
Although it may not sound very beneficial for the tenants, it actually provides them with a rent structure that is more closely aligned with their performance, so you won’t be short-changed.
5. Ground Lease
Have you thought about leasing land instead and building your own space completely tailored to you? Then a ground lease is the perfect solution for you. The tenant is required to finance and construct improvements on the leased land, then at the end of the lease term, ownership of the improvements will revert to the landlord.
Although this will be a longer term commitment ranging from 50 – 99 years, you can be confident in the space that you’ve created and possibly embark on commercial real estate developments. If you’re a growing business, this is a good starting opportunity.
Which Commercial Lease is Right for Me?
To help you decided which commercial lease is right for you, think about these questions:
- What is the nature of your business?
- What are the current market conditions looking like?
- Have you made all the right financial considerations?
- Have you assessed the risk tolerance?
If you’re still struggling to choose, we’re here to help! As one of the main assets for a business, obtaining legal advice before acquiring property can help to reduce the change of something untoward happening which could impact on the viability of your business. Caversham Solicitors’ Commercial Property Department is here to help. Get in touch with us today to arrange a consultation and discuss your requirements with our expert team.
