Commercial leases can take various structures, depending on the specific needs and objectives of the landlord and tenant. Here are some common types of commercial lease structures:
Gross Lease
In a gross lease (also known as a full-service lease), the tenant pays a fixed monthly rent, and the landlord is responsible for covering all operating expenses, including property taxes, insurance, maintenance, and utilities. This type of lease provides simplicity for the tenant, as they have a predictable rent amount without the need to separately budget for operating expenses.
Net Lease
Net leases allocate different responsibilities for operating expenses between the landlord and tenant. The main types of net leases include:
- Single Net Lease (N Lease): The tenant pays a base rent plus a portion of the property taxes associated with the leased space. The landlord is responsible for other operating expenses.
- Double Net Lease (NN Lease): The tenant pays a base rent plus a portion of property taxes and insurance costs. The landlord typically covers maintenance expenses.
- Triple Net Lease (NNN Lease): The tenant pays a base rent plus the full or a substantial portion of property taxes, insurance, and maintenance costs. The tenant assumes a higher level of responsibility for operating expenses, providing the landlord with a predictable net income.
Percentage Lease
A percentage lease is commonly used in retail properties, particularly for tenants with sales-driven businesses such as restaurants or retail stores. In this structure, the tenant pays a base rent plus a percentage of their gross sales above a predetermined threshold. This arrangement allows the landlord to share in the tenant’s success by tying rent payments to business performance.
Graduated Lease
A graduated lease, also known as a step-up lease or graduated-rent lease, involves predetermined rent increases over the lease term. These increases may occur at specific intervals, such as annually or every few years. Graduated leases provide the landlord with increased rental income over time and allow tenants to plan for future rent escalations.
Build-to-Suit Lease
A build-to-suit lease involves a customized arrangement where the landlord constructs or renovates the property to meet the specific requirements of the tenant. The lease terms and rent are typically negotiated based on the costs associated with the build-out or construction.
Ground Lease
A ground lease refers to an arrangement where the tenant leases the land from the landlord and constructs their own building or improvements on the property. The lease typically spans a longer duration, allowing the tenant to utilize the land for an extended period while paying rent to the landowner.
These lease structures can be further customized and modified based on the specific needs and preferences of the parties involved. It is crucial for both landlords and tenants to thoroughly understand the terms and implications of the chosen lease structure and seek professional guidance from a real estate attorney or commercial leasing specialist to ensure their interests are protected and aligned.