At Rare Space, we are experts on commercial real estate in Denver. Real estate is a complicated industry, and not everyone understands all the nuances involved. This is why it is important to hire tenant representation when you are signing a lease. Here, we will explain the different types of commercial real estate leases.
While the exact terminology and conditions vary, there are three basic types of commercial real estate leases. The differences between these types of leases are dictated by the way rent is calculated. The two methods of rent calculation are “gross” and “net.” A gross lease means that a tenant will pay one lump sum in rent which the landlord will use to pay for expenses. In contrast, a net lease involves a smaller base rent and the tenant pays for expenses. The third type is a modified gross lease, which is a combination of the two.
Gross leases are all-inclusive. The rent covers property expenses of all kinds, including taxes, insurance, utilities, and maintenance. This type of lease is very easy for tenants because it takes out unforeseen expenses. The landlord is completely responsible for the building. When negotiating a gross lease, it is important to understand exactly what is included in rent. What are the janitorial services, and how often are they performed? Also know whether there is a risk of being charged more for utilities if you use more of them than other tenants. For example, if your company uses more water, some leases allow the landlord to charge you more.
Net leases involve the tenant paying a lower base rent and then additional costs, such as maintenance, property insurance, and taxes. When negotiating a net lease, it is important to understand exactly what these additional costs are. There are a few different kinds of net leases: single net leases, double net leases, triple net leases, and absolute triple net leases.
Single Net Lease: In a single net lease, the tenant pays rent and a share of the property tax of the building, as well as utilities and janitorial services. The landlord pays all other expenses for the building.
Double Net Lease: As with a single net lease, the tenant pays rent, a share of the property tax, and the utility and janitorial expenses, as well as the property insurance. The landlord pays for repairs and maintenance in the common area.
Triple Net Lease: Triple net leases are the most popular net leases. In this type of lease, the tenant pays for a portion of the building’s property taxes, insurance, and common area maintenance fees on top of rent. There is generally a charge for common area utilities as well. The tenant pays all janitorial services and utilities, and their own insurance and taxes. These leases are more landlord-friendly, so they must be carefully negotiated. That is why it is crucial to hire tenant representation during these negotiations.
Absolute Triple Net Lease: In absolute triple net leases, tenants carry as much risk as possible in the property. Tenants are responsible for the building no matter what happens. These leases are less common, and much more rigid than the other net leases.
Modified Gross Lease
Modified gross leases are a compromise between net leases and gross leases. A modified gross lease requires a lump sum payment, like a gross lease, and can also include property taxes, insurance, or common area maintenance areas services. Generally, utilities and janitorial services are a separate fee. These tend to be more popular with tenants because they are more flexible.
When you need help negotiating your lease for commercial real estate in Denver, Rare Space can help. Contact us today for more information.