When negotiating the lease for your dental, medical, optometry, or veterinary practice, it is helpful to be familiar with the common types that are specific to commercial leases: gross or full-service leases, net leases, and modified gross leases.
In general, a gross or full-service lease involves a tenant paying a landlord a set dollar amount which will be inclusive of all expenses. A net lease requires a tenant to pay a specific (usually smaller) amount for rent, and additional amounts for other varying expenses. There are several varieties of net leases which will be discussed in further detail below. Lastly, there is a modified gross lease which allows for the best of both worlds regarding gross and net leases.
A Full-Service is exactly as the name describes: full-service. The dollar amount that the tenant pays to the landlord in a Full-Service is all-inclusive for the space which a tenant is occupying. The landlord does not separate expenses that the he or she needs to pay for such as the cost of utilities and cleaning or maintenance services.
A Net Lease is a lease wherein the tenant pays part or all of a property’s operating expenses. These expenses and lease rates are often highly negotiable and adjustable. Examples of these expenses include insurance, maintenance, and taxes. Because of the additional expenses that the tenant must pay, the cost of rent is often set at a lower rate. “Single,” “double,” and “triple” simply refer to the number of main costs that you pay in addition to your base rent: one cost, two costs, or three costs.
One example of a Net Lease is a Single Net Lease. It involves paying a pro-rata share of any property taxes due on the property, in addition to the base cost of rent. Some additional costs that might be included in a Single Net Lease are the cost of utilities and cleaning or maintenance services.
Another variation of the Net Lease, a Double Net Lease holds a tenant responsible for paying a pro-rata share of any property taxes due on the property, as well as a similar share of the costs of property insurance. This is in addition to the base costs of rent, utilities, and cleaning or maintenance services.
A third derivative of a Net Lease is a Triple Net Lease. In a Triple Net Lease, the tenant pays a pro-rata share of property taxes, property insurance, and common area maintenance (CAM) fees. In addition to these costs, the tenant is responsible for paying a base cost of rent and possibly the costs of utilities and cleaning or maintenance services.
A Modified Gross Lease is a cross between a Full-Service and a Net Lease. It allows for a tenant to pay the base rent and a pro-rata part of the property’s operating expenses. For example, these expenses might include maintenance, repairs, and cleaning or maintenance services. Any other operating expenses are still paid by the owner. These types of leases are most utilized in buildings that have multiple tenants in occupation. These tenants can pay costs divided evenly among them, or they might pay costs in proportion to the size of the space that they are located within.
When evaluating which type of commercial lease is the best fit for your practice, you will need to consider which expenses you’d like to be responsible for and in what capacity you would like to handle those expenses. Some tenants prefer to have all costs wrapped up into one rate, while others might prefer to pay for specific parts of a net lease. Overall, you will need to be sure that you are savvy at negotiating your lease to get the best bang for your buck. The more knowledge and understanding that you have regarding the three major types of leases, the better prepared you will be for the negotiation process.
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