Types of Commercial Leases Explained
Types of Commercial Leases Explained
Today let’s dive into one of the most fundamental concepts in commercial real estate: understanding the different types of commercial leases. Whether you’re a new business owner looking for your first space or an experienced operator opening a new location, knowing the common lease structures can save you serious money and prevent surprises down the line.
Let’s talk about the three main types of leases: Gross, Modified Gross, and Triple Net, often referred to as NNN. If you’re looking at office spacing, which is not a product type I typically cover, you will also see a full service lease type, which we will skip over for today’s video.
Let’s start with the Gross Lease. With a gross lease, your rent payment is all-inclusive. That means you pay one flat amount each month, and the landlord takes care of the operating expenses like property taxes, insurance, and maintenance.
While it may sound simpler, landlords typically price gross leases higher to cover their costs and protect themselves from rising expenses. So while you get predictability, you might be paying a premium for it.
Next is the Modified Gross Lease. This is a hybrid between gross and triple net. You might pay a base rent and take responsibility for specific expenses, like your electric bill or interior janitorial services. Landlords usually cover things like taxes and exterior maintenance. Note typically the sales lease tax paid to the state of Florida is typically not included in a modified gross lease. This structure gives you some cost certainty with more transparency.
Finally, the Triple Net Lease, or NNN. With this structure, you pay a lower base rent, but you’re also responsible for your portion of the property taxes, insurance, and common area maintenance—hence the term "triple net."
This lease offers more transparency and lower base rent, but your monthly expenses can fluctuate. For example, if property taxes go up, so does your bill. If a large repair is done on the property, and it falls under CAM, you may owe a share of that cost. This can be a risky Lease type for a small business owner. Costs can be variable, this can include the sale of the building you’re leasing which now gets assessed by the tax appraiser at the new market value based on the sale which can skyrocket your tax bill. There are ways to work on capping your expenses within the Lease negotiation, but that’s a whole video in and of itself that I’ll do later in this series.
Which lease is right for you? It depends on your business type, your cash flow predictability needs, and how involved you want to be in managing expenses. Some tenants prefer the simplicity of gross leases, while others prefer the transparency of NNN.
Before you sign any lease, it’s critical to understand the structure and what is included in the rent and what isn’t.
If you’re thinking about leasing warehouse or retail space, fill out the contact form. I’ll give you a call and we can talk about what you’re looking for in a new space for your business. It’s fast, simple, and could save you from making a costly mistake.
