Dental and Medical Counsel Blog

Picking out the right commercial lease – How we can help

June 11, 2022
commercial glass building

If you have decided to lease space for your professional practice, whether you are a dentist, physician, veterinarian, or optometrist, there are things you need to know about the various types of commercial leases. There are several types of commercial leases. Each type comes with its own advantages and disadvantages.

Navigating through the various leases for commercial real estate can be daunting. The decision you make often ties you to the property for many years. The common range is from 10 to possibly 25 years. This means picking out the right lease is extremely important and the reason why you want to carefully evaluate the terms of the lease that is offered to you so that you are fully informed before signing any lease. You want to avoid surprises later that could impact your finances and obligate you to pay for unexpected expenses.

 

At Dental & Medical Counsel (DMC), we provide you with our YouTube broadcast. That, along with the information presented in this article, will give you the details you need so that you can make the best leasing decision for your professional practice.

First, you need to know that there are three main types of commercial real estate leases:

  • Triple net lease.
  • Full-service lease, also called a gross lease.
  • Modified gross lease.

Triple Net Lease

A triple net lease is the most common lease used for commercial real estate. It is also the worst type of lease for the tenant. You will see the letters NNN next to the rental rate. That behooves you to investigate further before signing the lease.

A triple net lease is definitely a landlord-friendly lease. The tenant (lease) agrees to pay all the expenses of the property. This includes:

  • Real estate property taxes
  • Building insurance
  • Maintenance and upkeep of common areas
  • And much much more

And all this is in addition to paying rent and utilities. In a standard commercial lease, these expenses are typically paid by the landlord.

Advantages of a triple net lease

Some advantages of a triple net lease are:

  • The rent is typically lower. Since the tenant agrees to pay so many of the expenses, the rent is lower than in a standard commercial lease.
  • The location is generally more desirable than areas offering other types of leases.
  • The tenant can negotiate the lease terms so there are caps on each expense the tenant is expected to pay. Negotiation can also define expenses that will remain the obligation of the landlord, like if the building needs a new roof or the parking lot needs attention, the lease agreement can specifically say those expenses are not to be paid for by the tenant, but by the landlord.

The lease term is most likely 10 to 15 years with the lease having a built-in rent escalation clause. Some triple net leases offer a lease term of up to 25 years including options.

Other Net Leases. There are other net leases used for some commercial real estate. Examples are:

  • Double net lease (NN). The tenant agrees to pay rent, which is lower than a regular commercial lease, in addition to property taxes and insurance premiums. The landlord pays for maintenance and repairs.
  • Single net lease (N). These are not very common. The tenant pays rent plus real estate property taxes. The property owner pays all other expenses.

Full-Service Lease (Gross Lease)

A full service lease, also known as a gross lease, is essentially the opposite of a triple net lease. The tenant only pays rent and or utilities. All other expenses are paid by the landlord. There are some full-service leases that require the landlord to pay the utilities. If so, there is likely a clause that allows the rent to increase if the cost of the utilities increases.

The rent is higher because the landlord builds some of the expenses, like maintenance of the common area, into the rent. Read the lease terms carefully. There is often a clause whereby you agree to pay more rent if the maintenance expenses for the common area increase.

Modified Gross Lease

A modified gross lease combines the features of a gross lease and a triple net lease. In a gross lease, the landlord pays all the operating expenses. In a triple net lease, the tenant pays them.

In a modified gross lease, the tenant is responsible for some, but not all of the operating expenses. Each modified gross lease is unique to the property and the tenant. The terms must be completely spelled out in the lease agreement.

The expenses the tenant is responsible for vary according to the lease terms. For example, the tenant may be expected to pay for the insurance, upkeep, and maintenance while the owner remains responsible for property taxes. In some leases, the insurance costs may be split between the tenant and the landlord.

Everything is Negotiable

Remember when picking out the right leases that everything is negotiable. Commercial property owners are almost always looking for professional practices. This gives you and your practice leverage when negotiating and securing your lease.

All terms are negotiable, including the length of the lease. Although commercial leases are often for 10 to 15 years, you may want to negotiate for a shorter period of time. Also, if you agree to a triple net lease, you may want to negotiate a cap on the expenses you are expected to pay.

At Dental and Medical Counsel, these are all things we can help you with. If you are still in the “thinking about leasing” stage, we can connect you with a real estate broker who can help you with your search for the perfect location for your professional practice.

Contact us for a free consultation. For years, we have been helping dentists, physicians, optometrists, and veterinarians in all aspects of their practice including negotiating the leasing of commercial space. Contact us for a complimentary consultation to see how we can help.

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At Dental & Medical Counsel, PC, we understand dentists have trouble navigating the legal process. We believe every dentist deserves the best advice and service so doctors can do what they do best, treat their patients. We make dentists' lives easier by providing expert guidance, so they can focus on their personal and professional aspirations.

Sources

https://www.investopedia.com/terms/t/triple-net-lease-nnn.asp

https://signnn.com/modified-gross-lease-vs-full-service-lease/

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