Types of Office Space Leases
Gross or Full Service Lease
Though some sources break out the full service lease type from the gross lease in commercial real estate, they are usually the same. In a Gross or Full Service lease, the landlord pays for:
The gross commercial lease is used most often in office buildings, industrial and some retail properties. The landlord collects fixed rents and pays the expenses out of them.
Modified Gross Lease
A modified gross lease operates much like a gross lease, however, modified gross leases contain escalation clauses that increase rents over time , as costs increase, to offset tax increases and higher insurance and maintenance costs. These escalations clauses contain what is called a base year. The base year is usually the year the tenant moves in. During the base year, the tenant will not pay any taxes, insurance or maintenance. In every subsequent year that taxes, insurance and maintenance exceed the amount paid during the base year, the tenant is responsible for paying their pro-rata share of the increase. It is important that a tenant shopping for space understand any escalation clauses in order to project rent expense into the future.
Triple Net Lease
The triple net lease is popular for industrial and retail properties, where there are large fluctuations in expenses for each tenant. This lease structure is preferred by landlords because tenants pay their pro-rata share of all building expenses and maintenance. Tenants pay for everything from electricity to roof replacement.
Tenants may not like triple net leases because they cannot control increases in expenses which makes budgeting costs 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 general building upkeep which can be a large and many times unexpected expense. 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 trip net tenant in a new building can enjoy lower rent and expenses in their first few years.
Content is provided by SwiftLease leasing agents.