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Commercial Leases 101: 3 Types of Property Leases to Understand

Purchasing an investment property can make for a great financial decision. In doing so, savvy investors will have to sign up for the right commercial real estate lease to better manage their money. A lease is simply a contract that outlines the terms under which the tenant agrees to abide when renting an asset from a lessor, i.e. the landlord or property owner. There are some types of property leases you need to know.

In today’s discussion, we are going to focus on highlighting the three types of commercial real estate leases including:

  • Gross Lease (Full Service Lease)
  • Net Lease
  • Modified Gross Lease

Anytime that an individual signs their name onto a contract, they should fully understand what they are getting themselves into. Let’s break down each property lease so that potential real estate investors understand the process.

Three Types of Commercial Property Leases:

  1. Gross Lease (Full Service Lease)

As the rental & leasing industry continues to experience robust growth despite COVID-19, more commercial investors will be introduced to the gross lease. A gross lease revolves around the tenant’s rent covering all property expenses. Expenses involved in a gross lease can range depending on the specific contract and parties involved, though they typically cover the following areas.

  • Property Tax
  • Utilities
  • Maintenance & Repairs

A Full-Service Lease is often preferred by renters because it is the most all-inclusive option available to them. Whether this is for commercial property or a residential rental, a gross lease allows the tenant to turn to their landlord to handle all potential issues within the building.

Key Advantages of a Gross Lease

  • Rent Comprises ALL Potential Fees
  • Static Rental Rate Despite Variable Utility Use
  • Potential Inclusion of ‘Escalation Clause’

Landlords and property renters alike can benefit from a gross lease in the right context. Some landlords and property management teams will opt to include an escalation clause within their gross lease contract, allowing the property owner to increase and allocate rent costs to cover potential seasonal issues, such as air conditioning during the summer.

  1. Net Lease

Another type of commercial lease includes a net lease. The net lease is more idealized in the commercial real estate rental market. Net leases are ideal because they offer adjustability for both the tenant and the landlord, typically providing the tenant with fixed operating costs including property taxes, insurance, and common maintenance items.

Net Leases can be further subdivided into several other categories.

  • Single Net Lease — The Single Net Lease requires the tenant to pay a set rent price as well as a chunk of property tax, a number negotiated at signing with the landlord. Other utilities are further divided between the landlord and the tenant.
  • Double Net Lease — Similar to a single net lease, a Double Net Lease includes the tenant taking care of property insurance and property tax. Again, the landlord would take care of maintenance for all common area maintenance items, though the tenant is obligated to handle its own utilities.
  • Triple Net Lease / Absolute Triple Net Lease — The traditional triple net lease includes property taxes, common area maintenance, and insurance as well as the base rent, itself. Tenants have the ability to review their landlord’s expenses while acquiring all savings in the process. An Absolute Triple Net Lease is merely an extension of the traditional triple net lease, allowing for the tenant to take on all costs and responsibilities of the building.

Net leases and their various offshoots are among the most common leases sought by landlords and tenants alike. Working with a property leasing and management company like Strategic Properties can help renters and leaders alike to get the contracts they need to live better while saving money along the way.

  1. Modified Gross Lease

Rounding out the most common commercial property lease options available is the Modified Gross Lease, also known as the Modified Net Lease. This lease offers the best of both worlds in terms of offering a middle ground for landlords and tenants alike. A modified gross lease allows both parties to negotiate with regard to operating expenses after agreeing upon a base rental rate.

Key Advantages of a Modified Gross Lease

  • Investors Maintain Control of Key Property Elements
  • Tenants Can Enjoy Enhanced Ownership With Minimized Responsibility
  • Offers a Best of Both Worlds Scenario

The big advantage to a Modified Gross Lease is that they stay static despite changes in operating expenses. This allows both parties involved to save on expenses at one point or another. This is another type of lease that can benefit from the input and education offered by a Property Management and Leasing group like Strategic Properties.

Lease a Commercial Property with Strategic Properties Group

Are you looking to lease a commercial property in Florida? Strategic Properties Management offers commercial properties for lease in the Wesley Chapel and Land O Lakes area. Explore our available commercial properties or reach out to us and find out more about our commercial property management services today.