When taking on a commercial lease for your business, it can be a bit confusing to understand. There are many different options, but finding the best lease for your business is essential for success. One commercial lease that is worth looking into is a net lease. But, what exactly is a net lease?
Defining a Net Lease
A net lease is a type of lease in which the tenant is responsible for paying not only the rent, but also property taxes, insurance, and any other related expenses. In return, the tenant usually receives a lower rental rate. Net leases are often used for commercial properties, such as office buildings, warehouses, and retail stores.
Not all net leases are the same. There are four types of Net Leases: Single Net, Double Net, Triple Net, and Full Service Gross leases.
Single Net Lease
In this type of lease, the tenant is only responsible for property taxes on the building in addition to monthly rent.
Double Net Lease
In this type of lease, the tenant is responsible for property taxes and insurance on the building in addition to monthly rent.
Triple Net Lease
In this type of lease, the tenant is responsible for property taxes, insurance and all maintenance/repair expenses on the building in addition to monthly rent. This is generally considered the most expensive type of lease because the Tenant assumes all risks associated with ownership except for structural repairs.
Full Service Gross Lease
In this type of lease, also known as an “all-inclusive” or “full-coverage” lease, the landlord pays for all operating expenses associated with owning and maintaining the property in addition to monthly rent. These operating expenses can include but are not limited to trash removal , landscaping, parking lot maintenance, common area maintenance, utilities, etc. This is generally considered the least expensive type of lease because the tenant has no operating expenses except their monthly rent payment.
How to Negotiate a Commercial Lease
If you find yourself in a situation where you need to negotiate a commercial lease it’s important to know what your goals are going into negotiations. Are you looking for a lower rental rate? Are you looking for the landlord to shoulder more responsibility when it comes to paying operating expenses? Once you know what your goals are, you can start negotiating terms with the landlord. Some things that may be up for negotiation include:
- The duration of the lease term
- The amount of square footage being leased
- Which party will be responsible for paying operating expenses
- The amount of security deposit required at move in
Like anything else, there are pros and cons associated with signing a net lease agreement.
Some Benefits May Include:
- The ability to negotiate a lower rental rate, since you will be taking on additional responsibilities (i.e.: paying property taxes)
- A set cost each month for your rental payments which can help with budgeting purposes
Some Drawbacks Could Be:
- You may be assuming more risk than you would under another type of leasing agreement, since you will be responsible for additional charges like insuring the property or maintaining/repairing it if something goes wrong
- It can be more difficult to sublease space under a net leased agreement, so if your business needs change down the road it could be difficult (and expensive) to get out from under your current lease agreement
All in all, signing a net lease agreement can be beneficial if you are looking for stability in your monthly costs and don’t mind assuming additional risks associated with owning commercial property. However, if your business needs are subject to change or you want more flexibility down the road it might make more sense to sign another type of lease agreement.
Commercial Leases When You Need Them
Looking for a commercial lease? Schwarz Properties can help! We have a variety of properties to choose from, including office buildings, warehouses, and retail stores. Our team is experienced in negotiating net leases, so we can get you the best deal possible. Contact us today to learn more!