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Understanding terminology in commercial lease agreements

If you are among those seeking a home base for your business, you may find yourself poring over complicated lease agreements in your pursuit of an ideal locale. It is important to note that signing a commercial lease is quite different than signing a rental agreement for, say, an apartment, and the language used in a commercial lease agreement differs broadly, too.

When you rent an apartment, you probably agree to pay your landlord a certain amount of money each month, but when you lease a commercial space, you may find yourself responsible for additional expenditures. While there is often broad variation between one commercial lease agreement and another, there are some commonly used terms in these documents that dictate exactly what you are responsible for as a commercial tenant. Understanding the following terms can help ensure everyone understands the agreement in its entirety, which may help avoid hardship and possible litigation down the line.

A net lease, or single net lease

In this type of agreement, you, as a tenant, are responsible for paying for property taxes and utilities while your landlord is responsible for paying insurance and financing any maintenance or repairs that are necessary.

A net-net, or double net lease

In a net-net, or double net lease agreement, the landlord must pay for any necessary property maintenance or repairs while tenants foot the bill for property taxes, utilities and insurance premiums associated with the space.

A triple net lease

In a triple net lease, most of the financial responsibilities fall on the tenant. Generally, the landlord only steps in if the leased space needs structural repairs.

Full-service gross leases

Full-service gross leases and modified gross leases are quite common in multi-tenant buildings, and lease agreements for these properties generally dictate that the tenant and landlord share the costs associated with operation, such as property taxes and structural repairs.

When you do not fully understand the terms of your commercial lease, you run the risk of unanticipated expenditures. Understanding the terms of your lease can help you plan for your business’s successful financial future.

 

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