What Are The Different Types of Commercial Leases?

Which lease type is right for my business needs? 

Well let’s take a quick glance at a few of the most popular types of commercial leases and typically, when dealing with commercial real estate to lease in Pennsylvania or New Jersey a gross, single net, double net, percentage or triple net, lease is commonly used.

Please bear in mind, if you’re looking for a commercial location for your new or existing businesses entering into the right type of commercial lease could be the difference between your business succeeding or failing. Why? Remember, whatever type of commercial lease agreement you enter into, it must make sense financially and be flexible with it's terms and rental conditions for both parties. However, most commercial leases tend to heavily favor the Landlord and are usually prepared by their attorney in advance.
"My Personal Favorite"
The Gross Lease- A Gross a fully serviced lease where the landlord pays all or most of the expenses associated with the property.  Very often, the costs are passed onto the tenants in rent in what is referred to as a load factor.  Gross leases are usually used in office properties and warehouse space, but can be used in retail leases as well. the term "Fully Serviced Lease" refers to a lease in which the monthly rent includes the cost of certain types of services, which may include janitorial services, trash collection, utilities, water and sewer charges, property taxes, etc.  Instead of the tenant opening their own service or utility accounts and directly paying for these costs, the landlord pays for the expenses, but includes an amount in the monthly rent to help off-set these costs. In my opinion, I truly believe the Gross lease is a great tool for any start-up businesses venturing out into commercial space, however keep in mind this type of lease is used primarily in office space settings BUT it does not hurt to ask your Landlord before you get started.

Single Net Lease - A Net Lease is a type of commercial real estate lease in which the lessee (tenant) pays for their space, as well as for part or all of certain “Usual Costs” (expenses associated with operating, maintenance and use of the property) that the landlord pays. Expenses incorporated into net leases may include taxes, utilities, janitorial services, property insurance, property management fees, sewer, water, and trash collection. Net leases almost always favor the lessor (landlord) and should be negotiated to include caps, or, the maximum amount a landlord can increase fees each year.

Double Net Lease -  A Double Net Lease is a type of net lease in which the lessee (tenant) pays all or part of taxes and insurance associated with use of the property. These fees are paid in addition to monthly rent for use of the actual space.

Percentage Lease - A Percentage Lease is a lease where the tenant is responsible for paying base rent on the property, as well as a monthly % of revenue earned from the business occupying the rented space.  They are most often used in retail spaces and specifically malls. For example, a percentage lease might require a tenant to pay 5% of all sales that exceed more than $25,000 in any given month.

Triple Net Lease - A Triple Net Lease is a lease agreement on a property where the tenant or lessee agrees to pay all real estate taxes, building insurance, and maintenance on the property in addition to normal rent. In such a lease, the tenant or lessee is responsible for all costs associated with the repair and maintenance of any common area.  This form of lease is most frequently used for commercial freestanding buildings and retail space however, it has also been used in single family residential rental real estate properties. Triple Net leases almost always favor the landlord and should be carefully negotiated to limit how much the landlord can increase NNN fees each year.

When presented with a commercial lease it is not only good business sense but very prudent for you to have a business Attorney perform a legal review and help negotiate lease terms favorable to you and your business.  

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What Type of Commercial Lease is Best for your Small Business?

What Are The Different Types of Commercial Leases?

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