Are you a newly minted industrial rental property manager? Or perhaps you’re still learning the ropes? One of the many things you need to familiarize yourself with is the different lease types and terms.
As an industrial rental property manager, your job is to plan, control, and direct an industrial rental property’s daily operations. It only makes sense that you know what triple net lease or exclusive right means.
If you’re looking for an introduction to the most common types of lease agreements, we can help. This post will tell you about the different terms you will encounter in your journey to becoming a full-fledged industrial rental property manager.
Many leases are widely different from each other. Some types of leases have the entire load placed on the tenants. However, there are also types where the property owner takes on the whole burden.
A lease’s structure depends mainly on the preference of the lessor and the trends currently prevalent in the market. You can better understand what a lease is by learning the different types of leases listed below.
1. Triple Net Lease
This type of lease is associated with three categories of expenses — maintenance, insurance, and real property taxes. Hence, the name “triple.” They call these expenses “operating expenses.” Why? Because the property owner passes the responsibility to pay for them in the form of “rent excesses.”
Triple net leases are the norm in single-tenant and multi-tenant rental units, but the control is different between the two. In a single-tenant agreement, the control over exterior appearance and landscaping is under the tenant. With multi-tenant, the property owner has complete control over the appearance of the property.
2. Full-Service Lease
With a full-service lease, the property owner takes on most of the cost to operate the rental property. There are a few exceptions, like telephone costs, but the property owner takes care of the operational costs for the most part. This includes costs for common area maintenance, utility, interior, janitorial, insurance, and tax.
What does it mean for the tenant? Well, they can expect a slightly higher monthly rate. For this reason, a full-service lease is typical in large multi-tenant units that can’t be divided into smaller spaces. Although the tenant pays a higher monthly rate, it’s advantageous for them because they won’t have to pay extra costs on top of the monthly fees.
In a modified gross lease, the property owner takes on the entire burden. This means the property owner pays the common area maintenance, the insurance, and the property taxes. The only costs the tenant needs to handle are the utility, janitorial, and maintenance of the interior. Given that the owner takes on the whole load, tenants have higher monthly rates.
This type of lease also stipulates that the roof and the building’s structural aspects are the owner’s obligation. As the industrial rental property manager, you will likely be the one to handle all these. Many tenants like modified gross leases despite the higher monthly rate since they don’t take on the associated risks of renting the building.
4. Sublease Clause
The sublease clause is a part of a commercial lease agreement that says whether a tenant can or cannot sublease space to another. This clause can mean subleasing a part of the tenant’s space to someone else or leaving the space they rented and having someone else take over.
When you sublease space, the sublease tenant pays rent to the tenant along with related operation costs written in the lease. With this type of lease, the tenant takes most of the responsibility for paying the space’s operational costs.
5. Exclusive Right
“Exclusive Right” refers to the exclusivity clause in lease agreements wherein the tenant holds the right to be the only one that sells a particular product or a specific service. This means that if you open a gift shop at a mall, there cannot be another gift shop there.
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These are only a few of the terms you must know as an industrial rental property manager. As you get to know more, you can better handle the responsibility of managing the rental property’s daily operations.