Deciding to lease your space is just the first step in weighing your options for securing commercial real estate. There are a number of ways that lease deals can be structured, but generally, three main types of commercial real estate leases exist: net, gross and full service. Each type has its own distinct advantages and disadvantages, making it important that you understand the differences before you begin negotiating with a landlord.
Net Corporate Real Estate Leases
What They Are:
A net corporate real estate lease, or triple net lease as it's sometimes called, requires your company to pay rent and expenses separately. The arrangement makes the tenant responsible for the cost of utilities, property insurance, property taxes and maintenance not just for the space leased, but also for the rest of the property like the parking lots and any outbuildings.
Where They're Common:
Most often, net corporate real estate releases are used for standalone buildings where one company is the sole tenant.
Advantages:
With a net lease, a tenant can control costs better by controlling the use of utilities. In addition, tenants only have to pay the actual cost for property taxes and maintenance. If no major work is needed or property tax rates drop, this can end up saving a business money.
Disadvantages:
If something major goes wrong with the property, such as a furnace failing, or costs that are beyond the tenant's control like property tax rates suddenly rise, the company must have the ability to cover the added expenses. This can make a net lease risky for businesses.
Gross Corporate Real Estate Leases
What They Are:
Gross leases include a number of added fees in the cost of rent, reducing the amount of expenses that your company is responsible for paying for separately. Normally, property taxes are included in the rent, and in some cases common area maintenance (CAM) is added in as well. CAM covers the cost of maintaining shared spaces of a building. Normally with gross leases, tenants are responsible for paying for basic utilities for their rental space only.
Where They're Common:
Gross leases are most common in buildings that house multiple tenants.
Advantages:
The biggest benefit of a gross lease is that it makes it easy to forecast the ongoing costs of leasing a space. The lease will make it clear if and when rental rates can increase.
Disadvantages:
Tenants have less control over costs with a gross lease. If CAM is not included in the lease, companies will have an additional expense to cover along with utilities.
Full Service Corporate Real Estate Leases
What They Are:
With a full service lease, nearly all costs are rolled into the rent. This includes property taxes and insurance, CAM, maintenance and trash removal. Normally, the only separate expense tenants have is electricity.
Where They're Common:
Full services leases are most common in large office buildings.
Advantages:
A full service lease offers the same predictable cost advantages as a gross lease without any additional expenses.
Disadvantages:
Because full services leases include more fees, they are usually the most expensive. Similar to gross leases, full service leases also are less transparent, so tenants may pay more than the actual cost of what's included.
The type of commercial lease that is right for your business will depend upon the type of space that you're leasing, your company's ability to cover unexpected costs and other factors. Keep in mind that these definitions are general. A specific net, gross or full service lease may have its own unique terms, so it's always important to carefully read the lease agreement and asks questions before you sign.
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