You’ve found the perfect commercial office space in Tucson. You’re ready to sign the lease and get moving. Before you do, you should understand the different types of commercial leases and know exactly what you’re signing up to be responsible for. It’s not always as straight-forward as you think. For example, who will be responsible for paying real estate taxes and utilities? What about insurance? As you can see, it’s important to review your lease carefully. That way there are no surprises and you can have the upper hand in negotiating an agreement. Hiring an experienced broker is also a very important first step! Below are examples of various types of commercial leases from SquareFoot:
Full Service aka Gross Lease?
Signing a full service lease (or gross lease) means you are responsible for paying the base rent. However, the landlord covers all the building expenses, including maintenance fees, insurance, and real estate taxes. When preparing to sign a full service lease, pay attention to how much the lease says you owe for common area maintenance. The landlord may regain his costs with “Load Factor” in the rent.
A net lease usually stipulates that tenants pay a portion (but not all) of the building’s operating expenses: maintenance fees, real estate taxes, and insurance. Types of net leases include triple, double, and single.
Triple Net Lease
A triple net lease is essentially the opposite of a gross lease. The tenant (you) agrees to pay for not only the fees for rent and utilities but also all of the commercial property’s operating expenses, such as maintenance fees, building insurance, and property taxes. Usually, triple net leases require reduced rental prices because the tenant has assumed responsibility for the operating expenses.
Double Net Lease
A double net lease requires the tenant to pay for the rent and utilities, as well as the property taxes and building insurance. However, the landlord pays for the building’s structural maintenance expenses. Landlords renting an office building to multiple tenants will likely divide the property tax and building insurance expenses fairly among the tenants.
Single Net Lease
A single net lease stipulates that tenants pay for rental and utilities as well as property taxes. The landlord would take care of building insurance and maintenance expenses. Be careful not to confuse a single net lease with a net lease. A net lease refers to a category of leases including single, double, and triple.
Modified Gross Lease
A modified gross lease occupies the middle ground between a gross lease and a triple net lease. In general, a modified gross lease means that the tenant pays base rent, utilities, and a portion of operating costs. The details vary from contract to contract. In some modified gross leases, tenants pay only base rent and utilities for the first year but in each additional year pay a pro rata share of the building’s operating costs. Their share of expenses would likely be based on the percentage of the building that they occupy. For example, a tenant occupying 50% of a building would be responsible for 50% of its operating costs.
Absolute NNN Lease
Sometimes people incorrectly use the terms “absolute NNN lease” and “triple net lease” interchangeably. They are not, however, the same. Usually, triple net leases require tenants to pay for some or all building repair expenses, but in some cases the landlord will assist with those expenses. Conversely, an absolute NNN lease delivers the landlord from all responsibility for the building in every case. That means the tenant must cover all building expenses, including any maintenance or repairs to the building’s roof and structure. This lease usually applies only to tenants with national or regional footprints and excellent credit.
Percentage leases require tenants to pay a base rent in addition to a percentage of business sales. Landlords often ask for seven percent. Be wary if one asks for 10 or 12 percent. Retail mall outlets typically have these types of leases.
As you can see, when looking for commercial office space in Tucson, hiring an experienced broker and understanding the different types of commercial leases are a good place to start.