1. The Gross Lease – Though some sources break out the full service lease type from the gross lease in commercial real estate, they are more often the same. The landlord pays for: Taxes, insurance, and maintenance.
The gross commercial lease is used most often in multi-tenant and single tenant office buildings, industrial and some retail properties. The landlord collects fixed rents and pays the expenses out of them.
As costs increase over time, many gross and full service leases will contain escalation clauses that increase rents over time to offset tax increases and higher insurance and maintenance costs. It is important that a tenant shopping for space understand any escalation clauses in order to project rent expense into the future.
2. The Triple Net Lease – The triple net lease is used extensively in commercial real estate. It is popular for multi-tenant industrial and retail properties. With tenants whose expenses vary greatly, such as an industrial user of electricity, the triple net lease is best for the landlord.Tenants are resistant to triple net leases, as they have no control over increases in expenses and budgeting their costs is more difficult. This is especially true when it comes to repairs and maintenance. In a triple net lease, the tenants would be responsible for sharing the cost of roof replacement. This can be a large and many times unexpected expense.
Of course, fixed rent is lower with the triple net lease. If the building is a newer one, tenants may find triple net to be preferable to other choices. If establishing a new business, the triple net tenant in a new building can enjoy lower rent and expenses in their first few years. Once established, they may have grown to the point that larger space is necessary. The move can be to a different type of lease or another newer facility.
3. The Modified Net Lease – The modified net lease is a compromise between the gross lease and the triple net. The landlord and tenant usually set up a split of maintenance expenses, while the tenant agrees to pay taxes and insurance. Utilities would likely also be negotiated in the modified net lease.This type of lease might be used in industrial, retail or multi-tenant office properties. Tenant resistance to triple net leases, especially in older properties, makes the modified net lease more popular. It allows a compromise situation that shares the costs of building operation and maintenance.
The terms of a modified net lease are as varied as are building and tenant business types. The flexibility of this lease type makes for easier agreement between tenant and landlord. Many a lease has been put together because of creative modified net lease terms.
About The Sundance Company
Established in 1976, The Sundance Company has the experience to help you with your commercial real estate needs in Boise, Meridian, Nampa, and the greater Treasure Valley. If your requirements include property management, leasing, real estate development, project planning, construction or space planning then look to us. The Sundance Company has more than 1.5 million square feet of retail, office, and industrial space available in prime Boise and Meridian locations.
Please check out The Sundance Company website to view property photos, search for office space or learn more about Sundance’s start-to-finish capabilities. If you prefer to talk to someone in person about your commercial real estate needs, then just give us a call at our Boise office, (208) 322-7300
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