(Updated in March, 2018)
Let’s review the different types of commercial leases to prepare for negotiations and your expenses as a tenant.
What is a Full Service or Gross Lease?
In a full service lease, aka “gross lease,” the landlord covers all the building expenses. That includes maintenance fees, insurance and real estate taxes. You, the tenant, are responsible for base rent. That’s it. The landlord may, however, recoup his costs through the building’s load factor, rent you pay for use of the building’s common areas.
Triple Net Lease
A triple net lease is essentially the opposite of a gross lease. The tenant (you) agrees to pay for all of the building’s operating expenses. That includes maintenance fees, building insurance and property taxes.
Double Net Lease
In a double net lease or “net net” lease, tenants pay property taxes and building insurance premiums. Maintenance fees excluded.
A net lease usually stipulates that tenants pay a portion (if not all) of the building’s operating expenses: property taxes, insurance and maintenance.
Modified Gross Lease
In a modified gross lease, tenants pay base rent, and after the first calendar year of their lease, or base year, they pay a pro rata share of the building’s operating costs. Their share of expenses is based on the percentage of the building that they occupy. For example, a tenant occupying 50% of a building would be responsible for 50% of its operating costs.
Sometimes “absolute lease” and “triple net lease” are used interchangeably. They are not, however, the same. A crucial difference is that an absolute lease delivers the landlord from all responsibility for the building. Tenants must cover all building expenses, including any maintenance or repairs to the building’s roof and structure. This lease usually applies only to tenants with national or regional footprints and excellent credit.
Negotiation Tips and Exceptions
While each leasing category helps standardize a tenant’s expenses, they do not represent absolute rules. Every lease is negotiable to some degree, and the only way to be sure which expenses fall under your purview is a thorough review of the lease with your broker and attorney.