5 Types of Commercial Leases

The ideal commercial lease agreement works well for both sides. However, there is much to consider when negotiating and structuring a commercial lease. There are different types of commercial leases, so choosing the right type comes down to balancing the needs and preferences of both parties. Read on to learn more about different lease types for commercial real estate.

Types of Commercial Leases

Gross Leases

Gross leases are the simplest form of commercial lease. The tenant pays a fixed rent price, and the landlord covers all operating expenses. This simplifies matters for tenants since they only pay the base rent and don’t have to worry about fluctuating expenses. Without worrying about property taxes, insurance, and maintenance, finances are more predictable. However, property owners charge higher base rents on gross leases to ensure the rent covers the property’s operating expenses.

Single Net Leases

A single net lease requires the tenant to pay the base rent plus property taxes. Under this arrangement, the landlord will cover insurance and maintenance. The base rent is usually lower, with the tenant taking on more expenses and risk. For landlords, this reduces exposure to rising taxes. However, the costs for insurance and maintenance still pose some risks.

Double Net Leases

Under a double net structure, the tenant pays the base rent, property taxes, and insurance premiums. However, the landlord still covers maintenance costs. This lease type further reduces the owner’s exposure to operating expenses. It also typically results in a lower base rent to benefit tenants. With the owner and tenants sharing operating expenses, it is a good choice for multi-tenant properties. This lease type can also be suitable for landlords who want to reduce operating expenses while maintaining control over upkeep.

Triple Net Leases

A triple net lease shifts most of the operating expenses to the tenant. The tenant pays the base rent, insurance, property taxes, and maintenance. Tenants enjoy a lower base rent but must also handle unpredictable operating expenses. Landlords like triple net leases because they have the lowest exposure to fluctuating costs. They are also perfect for tenants needing more control over the property and its maintenance.

Percentage Leases

This lease type is common in some retail settings. It involves the tenant paying the base rent plus a percentage of their gross sales. However, it typically has a lower base rent since the landlord can expect income from their sales percentage. This lease type benefits both parties by investing the property owner in the tenant’s success. That incentivizes offering desirable spaces with high foot traffic and good maintenance. Percentage leases also typically have a “breakpoint,” the level of sales at which the landlord’s percentage kicks in.

While selecting the appropriate type of lease is essential, there is more to consider. You may have various terms that require negotiation and consideration. Property owners and tenants may benefit from working with commercial real estate professionals when creating lease agreements.

Do you need help with commercial lease agreements? Click here to contact Shuffler Commercial Real Estate. We work with property owners and businesses to negotiate fair leases. Reach out now to learn more about our services.

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