Sometimes, it’s beneficial to go back to basics. Whether you’re a new commercial real estate (CRE) pro or a seasoned veteran looking for new inspiration, there are a variety of CRE lease types to consider. Let’s go over five of the most common ones, in no particular order.
1. Percentage Lease – base rent + % of gross income
Most common among retailer and restaurant tenants, percentage leases have a base rent plus an additional amount based on percentage of gross profits. (The specifics are negotiated ahead of time, of course.) According to LoopNet, “this type of lease can work well for tenants, who pay a base amount they can afford every month, and beyond that, an amount that goes up only when their revenue also rises.”
2. Single-Net Lease – base rent + property tax
Next, we move into the first of our “net” leases. A net lease requires the tenant to pay a base rent + additional expenses, like utilities or maintenance fees. One type of net lease is the single net lease, which requires tenants to pay rent + property taxes. These types of leases aren’t very common.
3. Double-Net Lease – base rent + property tax + insurance
This type of lease is similar to a single-net lease, but the tenant pays a prorated amount for expenses (based on square footage) instead of actual expenses the individual tenant incurs. According to an article on LinkedIn, “the tenant must pay the rent, property taxes, and property insurance premiums. Exterior maintenance costs are paid exclusively by the landlord.”
4. Triple-Net Lease – base rent + property tax + insurance + utilities & maintenance
Popular among retail spaces and freestanding buildings, this type of lease makes the tenant responsible for the majority of costs, from taxes and insurances to maintenance and repairs. According to Investopedia, “triple net leases tend to have a lower rent charge because the tenant assumes more of the ongoing expenses for the property.”
5. Gross Lease – fixed base rent
Last, but most simple, is the gross lease. The landlord charges the tenant a set amount each month and is responsible for all expenses. According to 42 Floors, “a benefit of this type of lease is that it is supremely easy for the tenant, which can forecast expenses without worrying about an unexpected lobby maintenance charge, for example. The landlord assumes all responsibility for the building, while tenants concentrate on growing their businesses.”
If you’re interested in seeing how CRE software can help with any type of commercial real estate lease, request a demo of Quarem today.