Types of Commercial Leases

In commercial real estate, there are many ways a lease can be structured. It is important when negotiating a lease, either as a tenant or a landlord, that you consider the impact the lease structure you choose will have on your business. Since the needs of landlords and tenants vary widely, knowing the various lease structures and how they impact your business are vital to a successful landlord/tenant relationship. Often, the landlord's motivation in securing a particular lease structure is instilling predictability and consistency for future budgeting, cash flow, and profit management purposes. A tenant may have much different motivation, such as keeping initial costs low, understanding future liabilities, or not being tied to a long lease term. Whatever your motivation, the following summary of typical lease types provide a good foundation of understanding

Gross Lease: In a gross lease scenario, the tenant only pays rent. Expenses associated with the ownership and operation of the property, such as Taxes, Insurance, and Common Area Maintenance (CAM), are the responsibility of the landlord. 

Full Service Lease: In a full service lease scenario, the landlord provides additional services such as utilities, janitorial, maintenance, or security to the tenant. These services, as well as taxes, insurance, and CAM are provided to the tenant under the agreed upon rental fee. 

Net Lease: In a net lease scenario, the tenant pays rent plus a portion of building operating expenses. Typically, the amount owed for operation expenses is calculated based on the percentage of the building the tenant in question is leasing. In this scenario, the operating expenses that are passed through to the tenant are based on actual cost, not estimated costs.

Net-Net Lease (AKA NN or Double Net Leases): A net-net lease is similar to a net lease but the tenant will be responsible for additional expenses associated with owning a property, such as real estate taxes or insurance.

Net-Net-Net Lease (AKA NNN or Triple Net Lease): In a NNN lease scenario, the pays a base rental amount plus their proportionate share of the landlord's operating expenses. These expenses include real estate taxes, insurance, maintenance, and repairs.

Absolute NNN Lease: In an absolute NNN scenrio, the tenant is responsible for base rent and all expenses associated with owning and maintaining the building being leased. 

Land Lease or Ground Lease:m This scenario is different in that the tenant is only leaseing the property. The building constructed, typically by the tenant for their own use, is the sole property and responsiblity of the tenant. However, at the termination of the lease all property, including improvements and buildings, become property of the landlord.

Other terms to know:

Escalator Clauses: An escalator Clause is a provision that increases the rent over the course of the lease term. 

Percentage Rent: In a percentage rent scenario, the tenant pays either  base rent plus additional rent based on an agreed up percentage of business income OR base rent is solely the agreed upon percentage of business income.

If you are looking for space to lease for your business or are a landlord in search of a tenant, understanding lease types in very important. If you are in search of Gainesville Commercial Real Estate, Gainesville Office Space for Rent, would like to put your vacant space on the market, or just have questions about lease scenarios you may encounter, please give me a call. At Re: Solutions Collective, LLC,  we specialize in all things "Gainesville Commercial Real Estate"

Source:  AllBusiness.com


Virginia MacKoul

Virginia is a graduate from the University of Florida's College of Design Construction and Planning with a degree in Sustainability and the Built Environment, and a minor in Urban Regional Planning. Virginia joined the Front Street team in 2011, as an intern. Upon graduation, Virginia joined the Front Street team full-time as the Director of Client Services. Ms. MacKoul’s addition furthers Front Street’s continued growth and expansion within Gainesville and other North Central Florida markets. She was promoted to Director of Marketing in 2014 and now manages the firm’s team of interns and oversees all marketing and branding activity. Virginia was born in Boston and moved to Lee County, Florida in 1997. Virginia graduated her high school's International Baccalaureate program and started at the University of Florida with a focus on Architecture. Virginia shares Front Street's passion of giving back to the community and those in need. Virginia's hobbies include photography, cooking, football, movies, music, and spending time with her dog, Brinkley.