A short introduction to commercial leases
For commercial leases there are a wider variety of models than for a regular lease. They are usually structured in such a way that the tenant bears more responsibility for the condition of the property and to increase the landlord’s profit up front.
The different models of commercial leases
There are four main models for a commercial lease:
- Single-net lease: The tenant pays rent and property taxes, all other costs are the responsibility of the landlord.
- Double-net lease: In addition to rent and property taxes the tenant also covers the insurance for the property.
- Triple-net lease: This model involves the tenant paying rent, property taxes, insurance and maintenance costs.
- Gross lease: The tenant pays the rent while the landlord takes care of all other costs.
Advantages and disadvantages of net vs. gross leases
While a gross lease is the most convenient model for a tenant it has the big disadvantage of having no influence on the different costs. While property taxes do not vary based on who pays them other things like insurance, cleaning, maintenance, energy etc. offer potential savings if a tenant has control over which contractors and providers they use. One example of a gross lease would be a shared office space. Since these are typically geared towards freelancers and other one-person enterprises the one-stop-shop approach is very convenient for tenants.
In a net lease at least some, if not all, of the cost factors are in the tenant’s hands. This gives them the opportunity to lower costs by choosing a different cleaning contractor than the landlord would have or picking an internet provider that better suits their needs etc. On the other hand, the added responsibilities created additional paperwork that may turn out to be difficult to handle, especially for companies with fewer employees.
Commercial leases only allow the use for commercial purposes. It is important to make this distinction since they may often be cheaper in comparison to regular apartment leases. However, due to differences in taxation as well as insurance it is illegal for a person to use an object that is subject to a commercial lease as a private residence. Some objects, however, may be used for both. A medical practice or the offices of a lawyer can often be found in the same houses as their respective private residence. In these cases there is a clear definition of the rooms that are used for commercial purposes and those that are privately used.