At its core, real estate is about one simple thing: partnerships. Property owners, tenants, and other outside service providers all have to work together to create a positive environment for everyone. This isn’t always easy! One of the tools to make these partnerships safe and effective is the lease.
The lease is simply an agreement between the property owner and the tenant. The tenant agrees to pay a certain amount of money to use the property over a length of time. However, leases can be structured differently. Let’s take a look at the three most common types of commercial real estate leases, and how to interpret them.
- The Full Service Lease
The full service lease means that all the additional costs of using a property, such as maintenance, utilities, property taxes, and more, are included in the rent. The tenant will provide the property owner with a monthly payment or a lump sum, and does not have to worry about additional bills or fluctuating costs.
- The Triple Net Lease
Inside a triple net lease, you’ll find a lower base rental rate. Tenants will also be responsible for paying for the monthly operating expenses of the building, and will have to make sure to factor in estimations of these costs when negotiating a triple net lease. This is similar to ground lease. A ground lease is when the tenant is only leasing the “ground” from the owner, and is responsible for any improvements on the site.
- The Modified Gross Lease (The Customized Lease)
If the tenant or the property owner agrees, they can create a customized, or modified gross lease. This is no more than a compromise between full service lease and triple net lease. Some of the building expenses will be included within the rent, and some will be billed separately (such as electrical).
Not surprisingly, the market has a way of balancing out the end cost of renting a property over time, if you are working with honest companies and making good decisions. What’s most important is for both parties to make sure they read and understand the lease completely. It’s the only way to make accurate predictions for your expenses, which is a huge part of running a successful business.