| Connecticut Commercial Real Estate |
Leases Explained
Connecticut business owners and landlords need to be familiar with
all the types of leases available. Below a brief description of the
types of leases available:
1. The Gross Lease
The gross lease in commercial real estate is sometimes described
separately from the full service lease. However, the difference is
not great, and most people consider them together. Learn how
they are the same, the difference and how the gross commercial
lease differs from other commercial real estate lease types.
Though some sources break out the full service lease type from
the gross lease in commercial real estate, they are more often the
same. The landlord pays for:
Taxes
Insurance
Maintenance
The gross commercial lease is used most often in multi-tenant and
single tenant office buildings, industrial and some retail properties.
The landlord collects fixed rents and pays the expenses out of
them.
As costs increase over time, many gross and full service leases will
contain escalation clauses that increase rents over time to offset
tax increases and higher insurance and maintenance costs. It is
important that a tenant shopping for space understand any
escalation clauses in order to project rent expense into the future.
2. The Triple Net Lease
The triple net lease in commercial real estate requires that the
tenant pay a significant share of expenses of operation, as well as
all taxes and insurance related to their rental unit. This type of
lease helps the landlord by fixing their costs, as their rents are
fixed. Tenants aren't fond of this type of lease especially in older
properties.
The triple net lease is used extensively in commercial real estate. It
is popular for multi-tenant industrial and retail properties. With
tenants whose expenses vary greatly, such as an industrial user of
electricity, the triple net lease is best for the landlord.
Tenants are resistant to triple net leases, as they have no control
over increases in expenses and budgeting their costs is more
difficult. This is especially true when it comes to repairs and
maintenance. In a triple net lease, the tenants would be
responsible for sharing the cost of roof replacement. This can be a
large and many times unexpected expense.
Of course, fixed rent is lower with the triple net lease. If the building
is a newer one, tenants may find triple net to be preferable to other
choices. If establishing a new business, the triple net tenant in a
new building can enjoy lower rent and expenses in their first few
years. Once established, they may have grown to the point that
larger space is necessary. The move can be to a different type of
lease or another newer facility.
3. The Modified Net Lease
As a compromise between the gross lease and the triple net, the
modified net lease is quite helpful in helping landlords and tenants
to structure lease terms that work for both. This article gives the
details of how they differ from the other lease types.
The modified net lease is a compromise between the gross lease
and the triple net. The landlord and tenant usually set up a split of
maintenance expenses, while the tenant agrees to pay taxes and
insurance. Utilities would likely also be negotiated in the modified
net lease.
This type of lease might be used in industrial, retail or multi-tenant
office properties. Tenant resistance to triple net leases, especially
in older properties, makes the modified net lease more popular. It
allows a compromise situation that shares the costs of building
operation and maintenance.
The terms of a modified net lease are as varied as are building and
tenant business types. The flexibility of this lease type makes for
easier agreement between tenant and landlord. Many a lease has
been put together because of creative modified net lease terms.
all the types of leases available. Below a brief description of the
types of leases available:
1. The Gross Lease
The gross lease in commercial real estate is sometimes described
separately from the full service lease. However, the difference is
not great, and most people consider them together. Learn how
they are the same, the difference and how the gross commercial
lease differs from other commercial real estate lease types.
Though some sources break out the full service lease type from
the gross lease in commercial real estate, they are more often the
same. The landlord pays for:
Taxes
Insurance
Maintenance
The gross commercial lease is used most often in multi-tenant and
single tenant office buildings, industrial and some retail properties.
The landlord collects fixed rents and pays the expenses out of
them.
As costs increase over time, many gross and full service leases will
contain escalation clauses that increase rents over time to offset
tax increases and higher insurance and maintenance costs. It is
important that a tenant shopping for space understand any
escalation clauses in order to project rent expense into the future.
2. The Triple Net Lease
The triple net lease in commercial real estate requires that the
tenant pay a significant share of expenses of operation, as well as
all taxes and insurance related to their rental unit. This type of
lease helps the landlord by fixing their costs, as their rents are
fixed. Tenants aren't fond of this type of lease especially in older
properties.
The triple net lease is used extensively in commercial real estate. It
is popular for multi-tenant industrial and retail properties. With
tenants whose expenses vary greatly, such as an industrial user of
electricity, the triple net lease is best for the landlord.
Tenants are resistant to triple net leases, as they have no control
over increases in expenses and budgeting their costs is more
difficult. This is especially true when it comes to repairs and
maintenance. In a triple net lease, the tenants would be
responsible for sharing the cost of roof replacement. This can be a
large and many times unexpected expense.
Of course, fixed rent is lower with the triple net lease. If the building
is a newer one, tenants may find triple net to be preferable to other
choices. If establishing a new business, the triple net tenant in a
new building can enjoy lower rent and expenses in their first few
years. Once established, they may have grown to the point that
larger space is necessary. The move can be to a different type of
lease or another newer facility.
3. The Modified Net Lease
As a compromise between the gross lease and the triple net, the
modified net lease is quite helpful in helping landlords and tenants
to structure lease terms that work for both. This article gives the
details of how they differ from the other lease types.
The modified net lease is a compromise between the gross lease
and the triple net. The landlord and tenant usually set up a split of
maintenance expenses, while the tenant agrees to pay taxes and
insurance. Utilities would likely also be negotiated in the modified
net lease.
This type of lease might be used in industrial, retail or multi-tenant
office properties. Tenant resistance to triple net leases, especially
in older properties, makes the modified net lease more popular. It
allows a compromise situation that shares the costs of building
operation and maintenance.
The terms of a modified net lease are as varied as are building and
tenant business types. The flexibility of this lease type makes for
easier agreement between tenant and landlord. Many a lease has
been put together because of creative modified net lease terms.