What Are the Different Commercial Leases?

There are different types of commercial leases. Landlords must use the correct lease so tenants can fully understand the terms and conditions relating to their use of the property.

The type of commercial lease used typically depends on the building’s use, location, anticipated contract length, and the kind of business expected to fill the space.

For instance, a retail unit’s lease will differ from an office rental in Birmingham. Similarly, industrial property requires different lease terms than storage units, whether they are in the same location or not.

However, location can require the lease to include unique terms specific to the area, so you may expect, for example, a Peterborough commercial property to have terms that differ from those of a London commercial property lease.

Understanding these contractual differences is key so that first-time renters don’t incur unexpected fees when renewing or terminating a lease.

Our guide will help business owners familiarise themselves with the terms of each of the commonly available commercial leases;

Net Leases

The net lease is likely the type of lease most businesses will be offered. It requires renters to pay a portion or the full amount of operating building costs as well as the usual floor rent. Building operating costs can include maintenance, insurance, taxes, and utility bills.

Net Leases tend to favour the landlords. However, they can be negotiated between the parties. There are three types of Net Leases.

Single Net Leases involve the property tenant paying the base rent and property taxes. Landlords are expected to cover all remaining building operating costs, such as maintenance and utility bills. Single Net Leases are typically less uncommon than the two other types of Net Leases.

Double Net Lease

A tenant entering a Double Net Lease will need to pay tax and insurance costs on the property in addition to their base rent. Landlords or property managers will still need to cover utility and maintenance. Double Net Leases are the most commonly available commercial leases as they are considered a fairer split between the tenant and landlord.

Triple Net Lease

Although known as a “Triple” Net Lease, tenants are responsible for covering all property operating costs, including taxes, insurance, utility, and maintenance—including their agreed-upon base rent. Triple Net Leases tend to have a lower rental rate than advertised and can depend on the credit rating of the renter or business in question.

Percentage Lease

Percentage Leases are most commonly agreed upon with retail premises and involve the tenant paying the base rental amount and a percentage of the monthly business revenue earned. Landlords or business space owners may offer to lower the rent in return for a higher percentage cut of the monthly profit, and this can be negotiated at the time of the agreement.

Absolute Lease

While an Absolute Lease is considered similar to a Triple Net Lease, it carries different terms. For example, a landlord is still semi-responsible for any building rented under a Net Lease. In contrast, an Absolute Lease absolves the landlord or management company of any responsibility to the building, and tenants must cover all costs, including repairs, maintenance, taxes, insurance, and utility bills, in addition to their base rental amount.

Gross Lease

While considered a favourable lease for tenants due to the sole monthly payment to the landlord, Gross Leases can have a higher-than-average base rental cost due to the landlord’s ongoing responsibility for the rest of the building’s operating costs. New businesses may prefer a Gross Lease in their earlier stages to avoid getting caught out by unexpected property bills.

Some landlords may allow for a Modified Gross Lease, which has additional terms that may include a portion of the building costs but can be adjusted to suit both parties’ needs.

Tenants should seek advice before agreeing to a Gross Lease or Modified Gross Lease to ensure there hasn’t been too high an inflation of costs passed down from the landlord. A commercial estate agent could offer reasonable advice to both parties involved.

When it comes to negotiating the terms of your lease, you don’t have to accept the first offer. Make sure to agree on terms that are fair to both groups involved. Not only will this help your businesses with ongoing costs, but it will also help form a good working relationship between the tenant and landlord or management company.