leases

There are several types of leases commonly utilized in commercial real estate. It is important to understand these different leases in order to properly compare and contrast them when analyzing and negotiating for your company. The three most common leases in commercial real estate are: full-service gross leases, modified gross leases, and net leases. Most industrial facility leases are either modified gross or net. These forms of leases refer to roles and responsibilities, and how various costs are paid for between the landlord and the tenant.

First, let’s take a look at full-service gross leases. Under this arrangement, the tenant makes one monthly payment to the landlord, and the landlord is responsible for maintenance, taxes, insurance, and utilities. In most cases, the tenant is responsible for his share of any increase in operating expenses over the term of the lease.

Modified gross leases (or industrial gross leases) are commonly utilized in industrial facilities. They are comparable to full-service gross leases, but some specific operating expenses are paid directly by the tenant. Normally, tenants pay their own utilities and janitorial services. However, every situation is a little different, and many times these costs and responsibilities are negotiable.

Similar to gross leases, net leases appear in many varieties. Net leases require the tenant to pay some or all expenses directly related to the property. These expenses can include property taxes, insurance, maintenance, repairs, utilities, janitorial services, and other operating costs.

The three most common net leases are:
Single Net (SN)—The tenant pays a lump sum base rent plus property taxes. The landlord is responsible for all other operating expenses.
Double Net (NN)—The tenant pays a lump sum base rent plus property taxes and insurance. The landlord is responsible for all other operating expenses.
Triple Net (NNN)—Triple net leases are most commonly used for single tenant industrial facilities. The tenant is almost completely responsible for every operating cost related to the building. In addition to paying for taxes, maintenance, and insurance, tenants are also responsible for all costs associated with occupancy, including utilities, personal property taxes, and janitorial services. In most cases, the landlord is responsible for the roof and the structure.

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