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.
Contact Dental & Medical Counsel for Help with Negotiating Commercial Leases
At Dental & Medical Counsel, we specialize in helping dental, medical, optometry, and veterinary practice owners navigate the complexities of commercial leases. Whether you're considering a full-service lease, net lease, or modified gross lease, our team is here to guide you through the intricacies of each type, ensuring you secure the best possible terms for your practice. With our expertise, you can confidently negotiate your lease, protect your business interests, and avoid costly pitfalls. Contact us today to speak with a member of our team about negotiating the ideal commercial lease for your practice.
Frequently Asked Questions
Q: What is a Full-Service lease?
A: A Full-Service lease is an all-inclusive lease where the tenant pays a set dollar amount, covering all expenses, such as utilities, cleaning, and maintenance. The landlord absorbs the cost of these services.
Q: How is a Net Lease different from a Full-Service lease?
A: In a Net Lease, the tenant pays a base rent plus additional expenses like insurance, maintenance, and taxes. In contrast, a Full-Service lease includes all expenses in the rent amount.
Q: What is a Single Net Lease?
A: A Single Net Lease requires the tenant to pay base rent plus a pro-rata share of property taxes. Additional costs like utilities and cleaning may also be the tenant’s responsibility.
Q: What does a Double Net Lease entail?
A: A Double Net Lease requires the tenant to pay base rent along with a share of property taxes and property insurance, in addition to utilities and maintenance costs.
Q: What is a Triple Net Lease?
A: A Triple Net Lease is a lease where the tenant pays base rent, along with a share of property taxes, property insurance, and common area maintenance fees.
Q: What is a Modified Gross Lease?
A: A Modified Gross Lease is a combination of a Full-Service and a Net Lease. The tenant pays base rent plus a portion of operating expenses like maintenance and repairs, while the landlord covers other expenses.
Q: Which type of lease is best for my practice?
A: The best type of lease depends on your preference for handling expenses. If you prefer simplicity, a Full-Service lease may be ideal. If you want to control specific costs, a Net or Modified Gross Lease might suit your practice better.
Q: Are all commercial leases negotiable?
A: Yes, many aspects of commercial leases, such as rent, operating expenses, and maintenance responsibilities, are negotiable. It's important to understand the lease type and negotiate to get the best deal for your practice.
Q: How do I calculate my share of expenses in a Net Lease?
A: In a Net Lease, your share of expenses is typically calculated based on your proportion of the property’s total square footage. You may be responsible for a percentage of taxes, insurance, and maintenance costs.
Q: What are Common Area Maintenance (CAM) fees in a Triple Net Lease?
A: CAM fees are costs related to the maintenance of shared areas in a building, such as hallways, elevators, and parking lots. In a Triple Net Lease, tenants are responsible for a portion of these fees.
At Dental & Medical Counsel, we've been instrumental in realizing the practice goals of countless dentists. Whether you're looking to purchase, launch, or sell a dental practice, our expertise is your guide. Beyond the initial stages, we're committed to ensuring your dental practice remains legally compliant.
We provide comprehensive support, including employment law protections, dental contract reviews, and assistance with dental employment agreements. Additionally, we specialize in incorporating dental practices and securing trademarks. And for long-term planning, our services extend to helping dentists with succession and estate planning. Trust us to be your partner in every step of your dental practice journey.
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About Ali Oromchian, Esq.
Your Dental Lawyer
Ali Oromchian, JD, LL.M., is a leading legal authority in dental law and the founding attorney of Dental & Medical Counsel, PC, with over two decades of experience. His deep connection to dentistry comes from his wife's nearly two-decade-long career as a pediatric dentist.
This personal insight fuels his dedication to empowering dentists to navigate their legal challenges and achieve their practice goals. In doing so, Ali has helped thousands of doctors open their practices while maintaining legal compliance.
Ali is frequently quoted and contributes articles to dental publications, including the California Dental Society, Progressive Dentist, Progressive Orthodontists, Dentistry Today, Dentaltown, and The New Dentist magazines, further showcasing his commitment to the dental community.
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