Commercial Real Estate Leases
The Different Types Of Commercial Real Estate Leases
When you are looking at leasing a commercial property, it is important that you know about the different types of leases. It is important to remember that commercial real estate leases will be very different to residential ones with the latter generally being much simpler. This is due to the fact that commercial real estate comes with more considerations that will be important to the landlord and tenant. The type of lease that you will be offered will generally depend on the type of business that you are going to run from the property. For more business options, you need to perform research and market analysis.
The Impact Of Business Type
If you are going to be running a retail business from the property, you are going to have some months when you make a lot of money and others where you do not because of seasonal demand. Retail tenants will generally want to be able to pay low rental amounts in the bad months and higher rental amounts in the good months. In these cases, you should look at getting a percentage lease.
If you are going to run an office with a steady income, you should be looking at a gross lease. These leases will be very similar to a residential lease where you pay a set amount each month and possibly utilities. However, you will not be responsible for any of the building maintenance or operation as this will rest on the landlord.
If you are going to be running a manufacturing business or other industrial business including an auto shop, you will generally be offered a triple net lease. You might be able to come to an agreement with the landlord for a modified net lease as well if the triple net lease does not work for you. The reason why you will generally be offered these leases is the fact that the business will be utility heavy and harder on the property structure which will require more maintenance.
The Percentage Lease
When you have a percentage lease, you will be required to pay a base rent. You will also have to pay an amount over and above this which is based on the monthly sales volumes of your business. This additional amount will be a percentage of the sales volume which is where the lease gets its name.
Percentage leases are very common for retail businesses where there is a varying income. However, the location and nature of the business can cause these leases to have a serious impact on the percentage rent. If your business is going to have a steady sales volume, you might want to reconsider entering a percentage lease or get legal advice before doing this.
The Gross Lease
When you look at a gross lease, you will notice that it is often separated from a full-service lease. However, there are actually few differences between these leases and you might be able to consider them together. A gross lease is often the best for businesses that will not have any seasonal fluctuations in their income because you will pay a set monthly rental amount and it will be all-inclusive.
When you sign this type of lease, the landlord will pay for most or all of the expenses which are associated with the property such as maintenance, janitorial services, and property insurance. Of course, when you are offered this type of lease, you need to find out what services will be included and how often they will be offered to ensure that you are getting the best deal.
The Triple Net Lease
When you are offered a triple net lease, you will take on a share of the operating expenses of the property. This will include the insurance and taxes for the property that you are going to rent. This type of lease is generally more beneficial to the landlord than the tenant and you need to consider this.
The triple net lease will allow the landlord to fix their costs of the property as their rents are fixed. If you are looking at renting an older commercial property, you should be wary with this type of lease. The costs could be high in these buildings and you will be carrying most of them.
The Modified Net Lease
The modified net lease will be a compromise lease which places you between a gross lease and a ripple net lease. These leases will be helpful to landlord and tenants as they allow for structured terms which work for both parties. With this type of lease, you will generally have to pay for the utilities and some of the operating costs of the property, but the burden will not be as great as with a triple net lease.
There are many different types of commercial real estate leases that you could get and you need to be aware of them. It is recommended that you consider how your business activities will impact your lease and know what your other options are. So now, which option you select to put your commercial real estate on lease?