The Different Types of Commercial Leases

The Different Types of Commercial LeasesThe Different Types of Commercial LeasesYoure ready to hang out your shingle or otherwise go into business for yourself, but you need space, a place from which to run your operation. If youre wading into the world of commercial leases for the first time, you might feel a little overwhelmed by all the different terms that are thrown about. You might be unsure what youre getting into. Those terms are not actually as intimidating as they sound, however. Heres a chart you can use to identify the type of commercial lease youre being offered and what it means to your bottom line, along with some definitions for various terms. Types of commercial leases can overlap, so its important to focus on how rent and other fees are calculated. Types of Commercial Real Estate Leases Type of LeaseRent BasisOften Used InPercentage Leasekusine Rent + Percent of Monthly SalesRetail Businesses MallsNet LeaseIn addition to rent, tenant pays some or all of taxes, insur ance, or maintenance.Any commercial lease usually favors landlords interests.Double Net LeaseTenant pays rent + taxes and insurance.Any commercial lease usually favors landlords interests.Triple Net LeaseTenant pays rent + taxes, insurance, and maintenance.Any commercial lease usually favors landlords interests.Fully Serviced Lease (Gross Lease)Landlord directly pays all or most usual costs. These costs are often passed on to the tenant in rent as a Load Factor.Office, Some industrial and retail leases. Ok, so what does all this really mean? The following is a list of some of the terms youll want to make sure you understand, and some tips to help you remember what these different leases mean when youre negotiating and thinking on your feet. Base Rent This is the very least youll have to pay each month other fees, if any, are added to this amount. Think of it as the cousine of a hill or mountain.Double Net Lease Double means two additional costs will be added to your base rent tax a nd insurance costs incurred by the landlord.Fully Serviced Lease Also called a gross lease, your landlord willtake responsibility for paying for most of the extras, but make no mistake, they will most likely trickle down to you as a load factor. You can think of fully serviced as it includes everything, but your rent will most likely be substantially more than base rent. Load FactorLoad factor is a method of calculating total monthly rent costs combining usable square feet with a percentage of the square feet of common areas used by all tenants. Common areas typically include restrooms, lobby, elevators, stairwells, and hallways. If you share a building with three other tenants and each of your usable square feet the area youre actually renting as your store or office is substantially equal, your percentage contribution toward the common areas might be 25 percent or so. Net Lease This is a somewhat undefined version of a double or triple net lease. Youll pay for some taxes, insura nce and maintenance costs incurred by the landlord, if not 100 percent of one or all of them. The percentage can often be negotiable.Percentage Lease The word percentage does not relate to the usable square feet you can claim as your own in a commercial building nor the percentage of taxes, insurance, and maintenance you might pay as part of a net lease. Its a percentage of your monthly sales over a certain threshold. You might expect to pay this if you rent retail space in a mall. Rentable Square Feet This is your usable square feet positiv your percentage of the common area square footage.Triple Net Lease Triple means three additional costs over and above your base rent taxes, insurance, and maintenance. So there you have it. Go out and negotiate your lease like a pro.