Choosing the right commercial lease is crucial for any business owner venturing into commercial real estate. The terms of the lease can have a significant impact on your business’s bottom line, as well as your daily operations.
Selecting a commercial lease isn’t just about finding the right space; it’s also about understanding how the financial and operational responsibilities will be divided between you and the landlord. Since each type of lease comes with its advantages and drawbacks, taking the time to familiarize yourself with these can save you from potential headaches.
Gross leases and full-service leases
In a gross or full-service lease, the landlord covers all the property expenses, including taxes, insurance and maintenance. This arrangement makes it easier for tenants to predict their monthly expenses, but the rent is typically higher to cover the additional costs incurred by the landlord.
Net leases offer more responsibility and control
Another option is a net lease, which comes in a few different variations—single, double, and triple net leases. Each version requires the tenant to take on more of the property’s operating expenses. In a net lease, the tenant is responsible for covering some of the property’s operating costs and the rent.
Single net leases typically require tenants to pay property taxes, while double net leases include both property taxes and insurance. Triple net leases pass nearly all property expenses to the tenant, including taxes, insurance and maintenance.
Percentage leases suit retail businesses
A percentage lease, commonly used in retail settings, requires tenants to pay a base rent plus a percentage of their monthly sales. This type of lease can benefit businesses with fluctuating income, as it adjusts based on your revenue.
When it comes to commercial leases, understanding these options can empower you to negotiate a lease that serves your business’s needs. Before you sign a lease, have someone familiar with them review it to ensure your interests are protected.