Guest blog by Grace Carter. Grace is a content manager at Write My Essay and Essay Writing Service. She manages content publications, marketing and proofreads online submissions. Also, Grace is a teacher at Eliteassignmenthelp.com, academic website.
Taking out a commercial lease can be a daunting prospect, especially when you aren’t familiar with the terminology. As one of the most important aspects of starting and running a business, it’s vital that you know basic terminology to get the best deal, and best lease, for your business. Here is a breakdown of the top types of leases, and how you can choose the right one for your business.
Gross Lease, or Full Service Lease
This is ideal for businesses who don’t want to worry about unexpected costs, or have to sort out maintenance and running costs. In this type of lease, the rent is all-inclusive, with the landlord paying for taxes, utilities, insurance, general maintenance etc., making it very easy for the tenant, as there is little hassle. However, when taking out the lease, there are certain things that should be negotiated carefully, such as what services are included in the contract. Additionally, if the tenant is a large consumer of a certain utility, the excess cost will often have to be covered by the tenant, not the landlord. “These types of leases are great for businesses that are just starting out,” says Richard Beier, real estate writer at Essayroo and Best Essay Writing Service. “Rent will obviously be substantially more, but it is easier for businesses to forecast monthly expenses, as there are no unexpected utility bills.”
There are several different types of net lease, but the basis of them remains the same. The landlord charges a base rent, and then charges for some, or all, of the other expenses associated with running the building. The variations of net leases are as follows:
Single Net Lease:
Here, the tenant pays a base rent, plus a pro-rata share of the property tax, which is proportional to the amount of space they are occupying in the building. The tenants also must organize their own utilities and care-taking services.
Double Net Lease:
This is where the tenant pays a base rent and their proportional share of tax, again; they also pay for insurance, and for their own utilities and janitorial services. However, the landlord pays for structural repairs and common maintenance as part of the contract.
Triple Net Lease:
This is the most common type of commercial lease, where the tenant pays the base rent, plus all or part of the of the three ‘nets’: property tax, insurance, and maintenance. As with the others, the tenant pays for their own utilities, and other costs associated with their occupancy. The landlord makes an estimate of the running costs of the building, and charges the tenant proportionally. “Triple net leases are more landlord friendly”, says Brenna Paulson, business writer at UKWritings and BigAssignments. “Tenants should discuss caps on fees when negotiating the contract, as it can differ month to month, making it difficult to forecast. However, it is beneficial to tenants in that the cost savings are passed on to them, there is transparency in the operating expenses, and rent is lower than a gross lease, as they hold a portion of responsibility for the building.”
Absolute Triple Net Lease:
The final type of net lease is less common, due to its rigidity. It is known as a ‘hell or high water lease’, as the tenant is entirely responsible for the building – they would have to rebuild it after a disaster, and even continue paying rent after the building has been condemned.
Modified Gross Lease
This is a compromise between a net lease and a gross lease, and has benefits for both parties. The rent is requested in one lump sum, and the tenant and landlord negotiate what elements are covered within that payment. This is more popular with tenants, as it allows a flexibility that the other leases do not have. If the rates change during the course of the contract, then the landlord picks up the extra expenses, not the tenant, as in the other leases. Additionally, janitorial and utility bills are not included within the contract, so tenants can look for the best deal for them.
Different commercial leases have different benefits for different businesses. It is important to read contracts carefully, and have a full understanding of what expenses and clauses are included in the lease – it is always possible to negotiate better terms if you know what you’re talking about!
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