What Are the Different Commercial Leases?

London streetWhen it comes to renting property, there are different leases available for both residential and commercial properties. Making sure that the lease is understood in full is important and any potential renter should be fully acquainted with the terms of the lease before signing any agreement.

Commercial leases are typically quite different to residential and there are several different leases depending on the location, anticipated contract length and type of business expected to fill the space. For instance, a retail unit will have a different lease to that of an office space and Peterborough commercial property may have different lease terms to a London commercial property. Understanding these differences is key so that first-time renters don’t get hit with unexpected fees when it comes to renewing or leaving a lease.

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

Net Leases

Likely the type of lease most businesses will be offered, the Net Lease requests renters pay a certain portion or full amount of operating building costs on top of the base rent. Building operating costs can include maintenance, insurance, taxes and utility bills. Net Leases tend to favour the landlords, however, can be negotiated between the two parties and are also broken down into the following categories:

Single Net Lease

  • Single Net Leases involve the property tenant paying the base rent and the 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 Lease.

Double Net Lease

  • A tenant entering a Double Net Lease will need to pay both 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 lease 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 base rent. Triple Net Leases tend to have a lower rental rate than advertised and can be dependant on the credit rating of the renter or business in question.

Percentage Lease

Percentage Leases are most commonly agreed with retail premises and involve the tenant paying the base rental amount and a percentage of the monthly business revenue earnt. 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

An Absolute Lease, while considered similar to a Triple Net Lease carries different terms, for example, a landlord is still semi-responsible for any building rented under a Net Lease. Whereas 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 to the rest of the building operating costs. New businesses may prefer a Gross Lease while in their younger stages so as not to get caught out by unexpected property bills.

Some landlords may allow for a Modified Gross Lease which has additional terms in the lease that may include a portion of the building costs but can be adjusted to suit both party’s 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 would be able to 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 will help form a good working relationship between the tenant and landlords or management company.

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