How much businesses spend on rent each month for their commercial property is likely one of their biggest overhead expenses. Failing to have an adequate commercial lease in place could put their business at risk. The lease agreement is designed to protect the rights and outline the responsibilities of both parties involved.
Despite how common they are, reviewing commercial lease agreements can be complicated for both the tenant and the property owner. This blog will discuss the different types of commercial lease agreements.
What Are Commercial Lease Agreements?
Commercial lease agreements are contracts businesses sign to rent a business property or office space from a landlord. "Commercial" means that the lease in question is for business activities and not residential housing. Commercial tenants can include large corporations or sole proprietors.
Types of Commercial Lease Agreements
There are three common types of business lease agreements. The one thing these leases have in common is that they provide the tenant with a base rent with other variations on who pays for the different operational expenses.
Gross Lease
The tenant's rent pays for all the operating expenses for the property with a gross commercial lease. Examples of the types of expenses they could pay include:
- Maintenance
- Utilities
- Property taxes
The property owner will use the tenant's rent payment to offset these operating costs. Keep in mind that the base rent fee will typically be higher because of that.
Modified Gross Lease
A modified gross lease gives tenants and landlords a happy middle ground. This type of agreement offers a broader range of lease negotiation strategies when it comes to who pays for operating expenses. A few things to consider with this type of commercial leasing structure include:
- The base rent is subject to terms set by both parties
- The lease rate remains the same even if the cost increases or decreases
Net Lease
The net lease is one of the most highly adjustable commercial rental agreements. With this option, the base rent for a net lease is lower than what you would find with a gross lease. However, the tenant pays for fixed operating costs on top of their monthly lease rate.
Some of the operating costs the tenant would be responsible for include:
- Common area maintenance
- Insurance
- Property taxes
- Utilities
Other Terms Included in Commercial Leases
Rent payment and operating cost responsibilities aren't the only items included in commercial leases. The basic terms that should be included in a commercial lease include the following.
- The length of the lease term
- The security deposit amount
- How the property can be used
Get Help With Commercial Lease Agreements PMI Henderson
Navigating the world of commercial lease agreements can be complicated for tenants and property owners. You want to create agreements that ensure you're protected while not turning away prospective tenants. That's why it's important to partner with an experienced property management company that can help draft these documents.
PMI Henderson offers a wide range of property management services to residential and commercial clients. This includes property maintenance, accounting, and reporting. Reach out to our office to schedule a meeting with one of our property managers.
