Net Lease - Types of Commercial Leases - Part 4
In Commercial Real Estate, there tends to be confusion regarding the difference between a Gross and a Net Lease - and variations of each.
Going in, just keep in mind that the Tenant will ultimately pay for just about everything. Net leases break down the details into Base Rent plus Operating Expenses, whereas Gross leases have one rental amount - essentially the Base Rent and the Operating Expenses combined into one amount.
Net Leases involve a seemingly lower rent that an Industrial Gross Lease. However, the Net Lease base rent is just that - rent of the space and nothing more - with Operating Expenses (OPEX)(page under construction) being additional and usually consisting of Common Area Maintenance (CAM). property taxes, and property insurance. All of these will be the responsibility of the Tenant, usually as a Reimbursable Expense (page under construction) rather than a Direct Expense (page under construction) responsibility. With the Gross lease, the base rent includes all of these items, and is simplest for the landlord. Both leases usually allow the Landlord to recapture increases in the building or complex OPEX. For more details, visit Operating Expense Recapture (page under construction).
Leasing Overview Information
Our article - Types of Commercial Real Estate Leases - provides an overview of the major lease types used in Commercial Leasing.
Our article - Entering Into a Commercial Lease Agreement - A Guide From a Broker - provides a more comprehensive overview/guide to Commercial Leasing.
A commercial lease is, at least in general, a detailed specification of what property you will gain access to as a tenant, along with the responsibilities of tenant and landlord in terms of the elements of the property and the expenses involved. There are many different types of leases. Each should be analyzed carefully to see that they meet your expectations. Divvying up who will pay for what costs - now and throughout the life of the lease - is a major aspect of any lease. Some (many if not most, I hope) of these costs categories are summarized in the table below:
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A big part of a lease is outlining how these and other expenses are divided between landlord and tenant and how these expenses can vary over time for the tenant - which can, and probably should be limited by caps applied in the lease.
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