A Guide to Basic Types of Commercial Leases

If you’ve decided to go into business for yourself and need a space from which to run your new enterprise, it’s important to understand what types of commercial leases you will be offered. These agreements are a long-term commitment and can cost you a significant amount of money, but selecting the right one for your business operation can save you money in the long run.

There are three primary categories of leases when it comes to real estate used for commercial purposes. Below is a brief explanation of each one and what they mean for both you and your future landlord.

Gross Lease

Also known as a full-service lease, a gross lease is an all-inclusive lease where the Landlord pays all or most expenses for the property, which may include property taxes, insurance, janitorial services, utilities and insurance.   As a result of this extensive coverage, the base rent tends to be comparatively high, but it is fixed and not subject to increases in insurance, real estate taxes, etc. 

If you are offered a gross lease, read it carefully since many landlords will attempt to add “escalation clauses” to cover insurance, real estate tax increases or some other variable cost.

Single or Double Net Lease

Unlike the gross lease, a single net lease is adjustable since it will include base rent plus your pro-rata share of the building’s property tax. The landlord will cover expenses related to the building while you pay directly for services like utilities and garbage removal.  With a double net lease, the terms are similar to the single net lease, except that you will also be responsible for covering an agreed-upon percentage of the property insurance in addition to the property tax. The landlord then pays for common area maintenance while you remain responsible for your own services such as utilities and janitorial services.

Triple Net Lease

This is the most common type of commercial lease. Under a Triple Net Lease you, as a tenant, pay for some or all of the property insurance, taxes, and common area maintenance costs in addition to the base rent. While this type of lease tends to favor landlords, base rent is potentially lower since tenants carry the responsibility of operating costs.  Also, cost savings are typically passed on to tenants.

These are the commercial leases that you are most likely to encounter. There are others, but they are not as common. For example:

• An absolute triple net lease requires the tenant to assume responsibility for all costs, essentially making them solely responsible for the building. It’s as close as you can come to owning the premises without actually buying it, but if the property is ever destroyed, you are on your own. This is why an absolute triple net lease is so uncommon.
• With the modified gross or net lease, there is more room to negotiate factors like operating expenses. The base rent is based on terms that you and your landlord negotiate, but the cost of leasing remains fixed regardless of whether costs go up or down.

Conclusion

The best way to ensure that you enter into a fair and reasonable lease agreement is to work with a Florida small business attorney.  At the Florida Small Business Center, we regularly assist small business owners in negotiating both routine and complex commercial lease agreements for general office, medical, retail, and restaurant clients. To schedule a consultation to discuss your legal needs, call 1-866-842-5202.