The two major types of Commercial Lease Agreements

The two major types of Commercial Lease agreements in use in SWFL

Before we discuss the two most common commercial lease agreements a small business owner will encounter in SWFL. Let’s review all of the types.

Here are some of the most common types of commercial lease agreements:

  1. Gross lease: In a gross lease, the tenant pays a fixed rent amount to the landlord, who is responsible for paying all operating expenses such as property taxes, insurance, and maintenance costs.
  2. Net lease: In a net lease, the tenant pays a base rent amount, plus additional expenses such as property taxes, insurance, and maintenance costs.
  3. Double net lease: In a double net lease, the tenant pays a base rent amount, plus property taxes and insurance costs.
  4. Triple net lease (NNN lease): In a triple net lease, the tenant pays a base rent amount, plus all operating expenses, including property taxes, insurance, and maintenance costs.
  5. Percentage lease: In a percentage lease, the tenant pays a base rent amount plus a percentage of their sales revenue. This type of lease is often used in retail properties.
  6. Graduated lease: In a graduated lease, the rent increases by predetermined amounts over the course of the lease term.
  7. Ground lease: In a ground lease, the tenant leases the land from the landlord and constructs a building on it. The tenant typically pays rent on the land and is responsible for building and maintaining the structure.
  8. Short-term lease: Short-term leases are typically used for lease terms of less than one year, often for pop-up stores or seasonal retail locations.
  9. Long-term lease: Long-term leases are typically used for lease terms of five years or more and provide greater stability for both the landlord and tenant.

The specific terms and conditions of these lease types can vary depending on the needs and preferences of both the landlord and the tenant, as well as the type and location of the property.

However, the two most common that we see are the:

  • A triple net (NNN) lease is a type of commercial lease agreement in which the tenant agrees to pay not only rent but also a portion or all of the operating expenses associated with the property, including property taxes, insurance, and maintenance cost. In a triple net lease, the landlord is typically responsible for major structural repairs and capital improvements to the building, but the tenant is responsible for day-to-day expenses such as utility bills, repairs to the leased space, and other common area maintenance costs. This type of lease is often used in commercial real estate transactions, particularly for properties such as office buildings, shopping centers, and industrial parks. Triple net leases are popular among landlords because they can help shift some of the financial burden of property ownership to the tenant, while tenants may benefit from lower base rent payments in exchange for assuming these additional costs.
  • A gross lease is a type of commercial lease agreement in which the tenant pays a fixed rent amount to the landlord, who is then responsible for paying all of the property’s operating expenses, including property taxes, insurance, and maintenance costs. The landlord essentially absorbs all of the costs associated with the property’s operation and maintenance, and the tenant is not responsible for any additional expenses beyond the agreed-upon rent amount. In a gross lease, the tenant has a predictable rental payment each month and does not have to worry about unexpected increases in operating costs. This type of lease is common in commercial real estate for properties such as office buildings, retail spaces, and industrial parks. Gross leases may be more favorable to tenants who prefer a predictable monthly expense and want to avoid the risks of variable operating expenses. However, landlords may charge a higher base rent in order to cover their costs, since they are responsible for paying all of the property’s expenses themselves. Additionally, since the landlord is responsible for maintaining the property, tenants may have less control over the upkeep and appearance of the leased space.

 

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