Learn the four common forms for commercial leases before you sign

Updated: Jun 23, 2020

Signing a commercial lease for your business may seem on the surface like signing a rental lease for residential property, but there are many significant differences. For example, the obligations of a commercial landlord are often substantially less than those of a residential landlord. Commercial landlords can and often do pass on the cost of maintenance to the tenant.

The duration of the lease is often much longer, as commercial leases usually last for three to five years, as opposed to single-month or 12-month leases which are more common for residential properties. The better you understand the forms that commercial leases take, the better able you will be to make informed decisions about potential properties for your business.

Commercial leases usually come in one of four forms

The kind of lease that you signed will largely wind up defined by the cost and expenses that your landlord expects you to cover. A single net lease also called a net lease, involves a tenant paying for the utilities and property taxes, while the landlord assumes the costs associated with repairs and maintenance, as well as insurance on the property.

In a double net lease, sometimes called a net-net lease, the landlord pays for repairs and maintenance, while the tenant covers utilities, property taxes, and insurance costs. In a triple net lease, the landlord will only have an obligation to fund structural repairs, while all other costs fall to the tenant.

In a modified gross/net lease or full-service gross lease, the landlord lays out specific cost-sharing rules for all costs, ranging from maintenance to taxes, which the landlord assesses via common area maintenance (CAM fees). These leases are common in properties with multiple units, as they make it easier for the landlord to transparently split operating costs among tenants based on the size of the unit they occupy and certain other factors.

Depending on the desirability of the location and many other considerations that vary depending on the needs of your business, any of these four lease types can work well for your company when you need a facility. However, it’s important that you understand what costs you will have to incur and how those could impact your business’s financial solvency and liabilities in the future.

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