Commercial lease structures are quite different from the more common residential leases that most people are familiar with. The following is a break down of what each one means.
Full service or Gross lease: The tenant pays the base rent and the landlord pays all building utilities and expenses. However, there may be a load factor in the lease for common areas, so make sure everyone is clear on those additional expenses.
Net lease: Tenants pay a share of the building’s operating expenses such as maintenance, insurance, and taxes, in addition to the base rent. There are single, double, and triple net leases, which all have different terms and carry different levels of responsibility.
- Single net lease: The tenant pays rent plus some amount of taxes, insurance, and maintenance.
- Double net lease: The tenant pays rent plus taxes and insurance.
- Triple net lease: The tenant pays rent plus taxes, insurance, and maintenance fees, sometimes with assistance from the landlord and often at a reduced rent.
Modified gross lease: In this type of lease, which is a bit of a compromise between a gross and net lease, the tenant pays base rent and utilities. They also pay some portion of the operating costs, which is usually based on how much of the building they are renting. This amount depends on the specific contract.
Percentage lease: Tenants pay a base rent as well as a percentage of their sales. This is typical in leases for space in shopping malls.
Absolute NNN lease: Unlike with triple net leases, the word “absolute” in the title means the tenant is responsible for all building expenses and the landlord bears no responsibility.