Entering into a lease is a huge step for any business, as it provides great opportunity to grow your business. However, lease agreements are a long-term commitment and can cost you and your business a significant amount of money. Understanding the financial commitments of the lease is important for the long-term financial success of your business. There are three basic rent structures you will find in commercial leases: gross lease, single or double net, and triple net. Below is a brief explanation of these primary types of leases and what they mean for both you and your future landlord.
Also known as a full-service lease, a gross lease is an all-inclusive lease where the landlord pays all or most expenses for the property, which may include property taxes, insurance, janitorial services, utilities and insurance, while you are only responsible to pay rent to the landlord. As a result of the landlord carrying most of the costs of the property, the rent under a gross lease tends to be comparatively high, but the rent is fixed and not subject to increases when costs of insurance, real estate taxes, etc. increase. This will be an important for your long-term cash flow budgeting. If you are offered a gross lease, it is important to carefully review the lease since many landlords will attempt to add “escalation clauses” that will periodically increase the rent payment.
Single or Double Net Lease
Unlike the gross lease, the payment owed to the landlord under a single net lease may fluctuate since it will include base rent plus your pro-rata share of the building’s property tax. The landlord will cover expenses directly related to the building, such as repair and maintenance, while you pay expenses that are directly related to your operations, like utilities and garbage removal. A double net lease is like a single net lease, except that you will also be responsible for covering an agreed-upon percentage of the property insurance in addition to the property tax.
Triple Net Lease
This is the most common type of commercial lease. Under a triple net lease, in addition to rent, you will pay for some or all of the property insurance, taxes, and common area maintenance costs for the property. While this type of lease tends to favor landlords, rent is potentially lower since tenants carry the responsibility of operating costs. A triple net lease also provides the opportunity save some as cost savings that may occur in the property’s expenses are typically passed on to tenants.
At Ser & Associates, we work with our clients to negotiate commercial leases with landlords. If we can assist you in your business’s next lease, please contact us at 305.222.7282 or Info@Ser-Associates.com. Also, please be sure to visit us at www.Ser-Associates.com and follow us on Instagram, Facebook, and/or LinkedIn to learn more about how we can assist you and your business!