Commercial real estate leases are much more complicated than residential leases. Tenants and landlords alike have to be aware of the nuances of various lease structures before they commit.
In general, commercial leases tend to fall into two broad categories: gross and net. The differences can significantly impact a tenant’s expenses – and their landlord’s income.
What’s a gross lease?
A gross or “full-service” lease is a rental agreement where the tenant pays a set amount every month, and the landlord has the responsibility for most (or all) of the building’s operating expenses, such as:
- Property taxes
- Insurance
- Maintenance
- Utilities
- Common area maintenance
In a gross lease, tenants have predictable monthly costs because they’re not responsible for fluctuations in building expenses. Essentially, the tenant’s rent is “all-inclusive,” although modified gross leases can shift some expenses the tenant’s way. Gross leases typically give the landlords more control over the property, but tenants have less worry about upkeep.
What’s a net lease?
A net lease, on the other hand, places the responsibility for some or all of the property’s operating expenses on the tenant. In addition to the base rent, tenants must pay for costs like property taxes, insurance, maintenance, and sometimes utilities.
Net leases come in several variations, depending on how much responsibility the tenant assumes. Single net leases, for example, require the tenant to pay rent plus property taxes, while double net leases require them to pay rent, taxes and insurance. These are only two of the possible varieties. Tenants typically have more control over properties with a net lease, but they also have more expenses.
Which lease is right for you? Choosing between a gross lease and a net lease depends a lot on your financial priorities and need for operational control. Legal guidance, no matter whether you’re a landlord or a tenant, can help you make certain that you fully understand the implications of a contract before you sign.