Understanding Types of Commercial Leases

Posted on February 28, 2019

So, you’re ready to take the next step and move your business out of the basement and into a professional office—but what happens next? Acquiring professional space for business purposes is oftentimes a point of confusion when it comes to understanding the required lease agreements. It’s time to dispel the notion that commercial lease agreements are too complicated to understand. Here are the basics.

 

Types of Commercial Leases

 

Base Rent – This is the bare minimum amount that is required each month, independent of any other additional fees that may be added to the agreement.

 

Double Net Lease – Oftentimes this just means the tenant pays the taxes and insurance in addition to the base rent.

 

Triple Net Lease – Like a double net lease, this lease is the base rental price, but with three additional costs—typically the common area maintenance, taxes and insurance of the rental property. These additional costs are often referred to as CAM charges.

 

Net Lease – While similar to a double or triple net lease, a net lease does not limit the additional costs to only two or three. This lease agreement may have several extra costs beyond the base price with taxes and insurance.

 

Full Service/Gross Lease – This is just a fancy way of saying that your landlord will pay for any extra costs that may arise beyond the base rent. While this might sound attractive, those additional potential costs will most likely be reflected in a more expensive base price. The upside is that the tenant doesn’t have to worry about separately paying those extra costs.

 

Load Factor – It is not uncommon for more than one tenant to share office spaces within the same building. While each space is individually rented, common areas such as lobbies or bathrooms are shared. This type of lease typically combines the usable square footage from within an individual office space with a percentage of the shared common areas. This final figure determines the rent price for each space within the building.

 

Percentage Lease – This is an agreement that has nothing to do with the rental itself but is based on the tenant’s percentage of monthly sales. This is a common agreement if the rental is located within an area that is used for retail businesses.

 

Rentable Square Feet – This agreement is based entirely on the usable square footage of the available space.

 

Each type of commercial lease has its purpose and place within the real estate industry. A basic understanding of the parameters associated with each kind of agreement takes the guesswork out of finding the perfect fit for your company and its office needs.

 

Chris Falk is an expert in office lease types and has a broad understanding of how to best guide his clients find which circumstance will be most beneficial to their needs.

 

Contact Chris Falk at 801-416-1024 or cfalk@ngacres.com or visit his website chrisfalk.com