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Commercial Lease

Realizing a landlord and tenant match in Commercial Real Estate requires a Commercial Real Estate professional to execute a lease that mutually benefits both parties. The landlord’s needs are to earn a solid income from monthly rent payments and to effectively manage the associated costs of the property to guarantee a profit. The tenants on the other hand, wish to set or fix their rental costs as closely as possible. Brokers Real Estate Group, Inc. has the experience and knowledge to execute the type of lease that will satisfy both the landlord and the tenant, recurrently shortening negotiation times. Brokers Real Estate Group, Inc. practices with the following types of leases:

1. The Gross Lease

Lease AgreementThe gross lease in commercial real estate is sometimes described separately from the full service lease. However, the difference is not great, and most people consider them together. 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 the Taxes, Insurance, and Maintenance.

The gross commercial lease is commonly used in multi-tenant and single tenant office buildings, industrial, and some retail properties. The landlord collects and pays the expenses from the fixed rent payments.

As property costs increase over time, many gross and full service leases will contain escalation clauses that increase rent payments over time to offset tax increases, higher insurance premiums, and maintenance costs. It is important that a tenant shopping for space understands any escalation clauses in order to project rent expenses for the future.

2. The Triple Net Lease

The triple net lease in commercial real estate requires that the tenant pay a significant share of expenses of operation, as well as all taxes and insurance related to their rental unit. This type of lease helps the landlord by fixing their costs, as their rents are fixed. Tenants tempt to stay away from this type of lease, especially when contemplating an older the property.

Corporate buildingThe 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. They have no control over increasing expenses and the budgeting of their costs become more difficult. This is significantly true, especially 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 an unexpected and unwanted generous expense.

Of course, fixed rent is lower with the triple net lease. If the building is a recently built property, tenants may find triple net to be preferable to other choices. If establishing a new business, the triple net tenant in a newer building can enjoy lower rent and expenses in their first few years of operation. Once established, they may have expanded to the point that larger space is indispensable. The options will be to execute a different type of lease or move to another newer facility.

3. The Modified Net Lease

Office building 1cAs a compromise between the gross lease and the triple net, the modified net lease is quite helpful in helping landlords and tenants to structure lease terms that benefit both parties.

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 costs would likely also be negotiated in the modified net lease.

This type of lease might be used in industrial, retail, or in 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 times, a lease has been executed because of creative modified net lease terms.