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Different commercial leases for different situations

| Aug 14, 2020 | Commercial Real Estate |

Every real estate contract is different. There are many types of leases that are used for commercial real estate that govern specific situations, obligations, and negotiations.

Full service or gross lease

These leases require the tenant to pay the base rent. The landlord is responsible for covering maintenance fees, insurance, real estate taxes and other operating expenses. Tenants, however, may pay for common area maintenance.

Tenants are sometimes financially responsible for the loss factor. This is the square footage office space that tenants pay for and do not use such as a utility closet or bathroom.

Net leases

A net lease requires that tenants pay some of the building’s operating expenses. There are several of these types of leases.

One of these, a triple net lease, requires the tenant to pay the property’s expenses along with rental and utility fees. These typically require lower rents because tenants assume responsibility for operating expenses.

Double net leases require tenants to pay for operating expenses while the landlord pays for the structural maintenance expenses. Landlords renting an office building to multiple tenants usually divide the property tax and insurance costs equitably among the tenants.

In a single net lease, tenants pay for rental, utilities, and property taxes. Landlords cover insurance and maintenance expenses.

Modified gross lease

A modified gross lease requires the tenant to pay base rent, utilities, and part of the operating costs. Each contract has different terms.

In some of these leases, tenants pay base rent and utilities for the first year but pay a proportional share of the building’s operational costs in each additional year. Their share of expenses may be based on the percentage of their building occupancy.

Absolute NNN lease

An absolute NNN lease releases the landlord from paying for building expenses. Tenants are responsible for all building expenses and maintenance or repairs to its structure and roof. Tenants which enter this lease usually have a national or regional presence and superior credit.

Percentage lease

This lease requires a tenant to pay a base rate and a percentage of their business sales. Retail mall outlets have these type of leases. The percentage of sales paid in these leases is usually seven percent.

Typical lease use

Commercial space usually involve gross, modified gross, net, double net, triple net, and single net leases. An absolute lease is used as long-term leases to credit tenants. Retail spaces often involve a percentage lease.

An attorney can help draft and review a lease to assure that it meets your needs. Lawyers can also help represent your interests in negotiations.

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