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Types of Commercial Leases

There are three basic types of commercial real estate leases which are organized around two rent calculation methods: “net” and “gross.” With a gross lease, a tenant typically pays one lump sum for rent, from which the landlord pays his expenses. The net lease has a smaller base rent, and the tenant pays other expenses. The modified gross lease is a happy marriage between the two.

Gross Lease Lease

As briefly state above, the rent is all-inclusive in a gross lease. The landlord pays all or most expenses associated with the property, including taxes, insurance, and maintenance out of the rents received from tenants. Utilities and janitorial services are included within one easy, tenant-friendly rent payment.

One of the benefits of this type of lease is that is that tenant is able to plan financially without worrying about an unexpected charge.

Net Lease

In a net lease, the tenant is charged a lower base rent for the commercial space, along with some or all of “usual costs”, or expenses associated with operations, maintenance, and use. These can include real estate taxes; property insurance; and common area maintenance items (CAMS), which include janitorial services, property management fees, sewer, water, trash collection, landscaping, parking lots, fire sprinklers, and any commonly shared area or service.

There are several types of net leases:

1. Single Net Lease – tenant pays base rent plus a pro-rata share of the building’s property tax (meaning a portion of the total bill based on the proportion of total building space leased by the tenant); the landlord covers all other building expenses. The tenant also pays utilities and janitorial services.

2. Double Net Lease – tenant is responsible for base rent plus a pro-rata share of property taxes and property insurance, along with janitorial and utility expenses. The landlord covers expenses for structural repairs and common area maintenance.

3. Triple Net Lease – the most popular type of net lease for commercial freestanding buildings and retail space, the tenant pays all or part of the three “nets”–property taxes, insurance, and CAMS–on top of a base monthly rent.

This list is not exhaustive. For more information on the various types of commercial leases available to you as a landlord or tenant, contact the experienced real estate lawyers at Hart, Watters & Carter today.