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Choosing Between a Net or Gross Lease

Posted on: January 22, 2018

Choosing between a net or gross commercial real estate lease is one of the biggest decisions that you can make, with terms that are very different.

Net leases require the tenant to pay a substantial portion of the operating costs related to the property if not all of them, however, gross leases are more tenant-friendly and cover all of the expenses within the rent.

When deciding between either option, it’s highly recommended to meet with a South Florida commercial real estate attorney for advice on your situation.

Gross leases

Gross leases typically favor the tenant and can be a preferred option for many business owners. With most of the expenses being covered by the landlord, such as property taxes, insurance, maintenance service and utilities, it allows the tenant to have a full expectation of their monthly expenses.

Typically, specific expenses like property taxes have to be negotiated along with several other terms. Landlords may prefer that some tenants sign a net lease if they are expected to have higher than normal utility costs or maintenance costs.

Triple net leases

Triple net leases can be favorable for the landlord because the tenant will pay an agreed rent along with part or all of the property taxes, insurance, and maintenance of common areas. Tenants are usually only required to pay a proportionate share of these costs based on their usage.

There are a variety of structures that can be used – in one there may be a primary rent payment and a “secondary” rent payment that covers the tenant’s portion of taxes, insurance and maintenance. At the end of the year, an adjustment can be made to determine if the tenant paid too much or too little.

Double net leases

Double net leases have a similar structure but will require the tenant to typically pay for their rent, property taxes and insurance, while the landlord would cover maintenance related expenses. Double net leases are common in commercial real estate.

Single net leases

Single net leases require the tenant to pay property taxes in addition to their rent. These leases are not as common because of the greater cost burden on the landlord.

Deciding what will work for you

Commercial real estate leases can be quite complicated, and these are just the main differences between each type. Whether you are a landlord or a tenant, it is always helpful to consult with a commercial real estate lawyer in South Florida to draft or negotiate your lease and get advice on the terms that you should include. If you have any questions about commercial real estate leases, call Schecter Law today at (954) 779-7009.