Commercial real estate leases differ significantly from residential ones. Therefore, Californians involved in commercial operations should understand the differences between renting a home and renting space in a commercial building.
What are the types of commercial leases?
Although every lease is negotiable, landlords have a choice of offering five basic types when renting commercial real estate space. Each has different considerations and responsibilities for the landlord and the tenant. The five basic lease types are:
- Full service/gross lease
- Net lease
- Triple net/NNN lease
- Double net/NN lease
- Single net/N lease
In a full-service lease, the landlord is responsible for paying building expenses such as maintenance fees, insurance and real estate taxes. This lease type usually results in high rental rates but is convenient for tenants who prefer to avoid becoming involved with those additional aspects. Net leases specify that the tenant pays a specific percentage of operating expenses in addition to their rent.
Triple net leases are the exact opposite of a full-service lease, as tenants must pay for all operating expenses, including utilities, maintenance fees, building insurance, and property taxes. Double net leases are similar, but the landlord pays for structural maintenance expenses. In a single net lease, tenants pay for rent and utilities along with property taxes.
What types of leases should I offer my tenants?
The type of leases offered to commercial tenants depends on the type of commercial development you own and the tenants you have. For example, if you own a shopping center, your leases for anchor stores will differ from those for smaller retail tenants. Leases for office buildings will vary entirely from commercial retail.
Leasing issues can become complex, especially when tenants demand concessions from landlords. Knowing when to give in to those demands and when to stand firm is critical to running a successful commercial real estate venture. Carefully evaluate your expenses and determine which type of lease for each tenant will be most profitable. Remember to assess each situation and tenant individually.