The 3 Most Common Types of Commercial Leases
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If you're a tenant looking to lease commercial real estate space, it may be hard to discern the difference between the various lease options offered by landlords. Knowing the types of leases available, and what each structure does or does not include in the quoted rent price, will help you budget for your next commercial space.
There are three primary types of commercial leases:
- Full-service gross leases.
- Percentage leases.
- Net leases, which has two main subcategories — double net leases and triple-net leases.
1. Full-Service Gross Lease
A full-service gross lease, or gross lease, is the simplest type of commercial lease, where the landlord charges a single monthly payment that includes property taxes, insurance, maintenance, and common area maintenance fees.
This lease structure is most common in multi-tenant office buildings and upscale retail properties. While the bundled rate is generally higher than other lease types, it offers predictable expenses. Some agreements, known as "modified gross leases" exclude utilities or other tenant costs, with many including expense caps to limit overages.
Take a look at some available listings below to get an idea of properties that are often offered with full-service gross leases.
Office Space For Lease
Modified Gross Lease
A modified gross lease is a combination of a gross lease and a net lease. In this structure, the tenant pays a base rent plus certain building operating costs, such as utilities, janitorial services, and sometimes property taxes or insurance. Unlike a full-service gross lease, this type of agreement splits specific expenses between the landlord and tenant, offering a balanced and flexible approach to cost-sharing.
Similarly, flexible lease arrangements like a master lease give tenants operational control and the ability to sublease while balancing cost responsibilities. This adaptability makes both options suitable for tenants looking to optimize costs and control.
2. Percentage Lease
Percentage leases are most commonly used for retail properties, especially in malls. In a percentage lease, tenants pay a base rent plus a percentage of their gross sales. This setup allows tenants to keep rental costs low during slower sales periods and only pay more when their revenue increases.
The base rent is usually lower than in other lease types, providing initial affordability. The percentage of sales paid to the landlord typically ranges from 5% to 10%, depending on the agreement. Often, a percentage lease includes a breakpoint, a minimum revenue threshold that must be exceeded before the extra percentage fee applies. This type of lease incentivizes landlords to support tenant success, as their income directly benefits from higher tenant sales. It’s a flexible option for businesses expecting variable income.
Take a look at some available listings below to get an idea of retail properties for lease near you, many of which may feature percentage lease arrangements.
Retail Properties For Lease
3. Net Leases
A net lease refers to a lease structure where the tenant pays a base rent and is also responsible for directly paying specific building-related expenses.
The base rent is generally lower than that of a gross lease since tenants also cover utilities, cleaning fees, property taxes, CAMs, and insurance premiums. It’s important to carefully evaluate these additional costs when estimating your total expenses.
There are three main types of net leases: single-net, double-net, and—most commonly—triple-net leases. We'll break down each type and its related expenses below.
Net leases are especially common in single-tenant properties, including freestanding restaurants, chain retail spaces, and select industrial properties. Take a look at the listings below to see available restaurant properties for lease that are often structured with net lease agreements.
Restaurants For Lease
Single-Net Lease
Single-net leases are not very common, but in this type of structure tenants pay a base rent plus their pro-rated share of the building's property taxes. Tenants also typically pay for their own utilities and janitorial service. The landlord covers all other expenses, including insurance premiums and CAM charges.
Double-Net Lease
Often displayed as "NN" in property listings, double net leases charge the tenant a base rent plus the tenant's share of property tax and insurance premiums. Tenants also pay for their own utilities and janitorial expenses.
What the tenant does not pay for in a double-net lease are common area maintenance fees. These may include expenses for equipment, supplies, maintenance and any necessary repairs of the lobby, restrooms, elevators, stairwells and hallways, as well as the salary of a lobby attendant or security guard. These costs are covered by the landlord.
Triple-Net Lease
The triple-net, or "NNN," lease, charges tenants a base rent, and tenants are then responsible for paying their own utilities and janitorial expenses, in addition to their share of the property tax, insurance premiums and CAMs.
The base rent for a triple-net lease is often a lower cost due to the fact that the tenant is responsible for all the associated charges of the property. Triple-net leases are one of the most common types of commercial leases.
Triple-net leases are beneficial for tenants as they allow them to pay their fair share of building expenses, and depending on individual usage, some tenants can save on costs compared to a gross lease. However, this lease type also comes with risks considering the tenant bears all the responsibility for expenses. Tenants can consider negotiating a cap on expenses in a net lease structure, especially if the building is older and may need frequent repairs.
Absolute Net Lease
An uncommon variation known as an absolute net lease or "bondable lease" holds the tenant responsible for paying rent, expenses and for all repairs to the building. The tenant is responsible for these items regardless of the building's condition, even if it becomes condemned, and also for rebuilding it in the event of a disaster. This type of lease is mostly used by landlords who have borrowed heavily to finance the property and pledge the rent money as a security for the debt, and it puts all risk on the tenant.
No matter what type of lease structure a building utilizes, it's a contract — and contracts are negotiable. With so many lease items to consider, you're likely to find trade-offs or concessions that will result not only in a signed deal, but an amicable relationship that lasts for the duration of the multi-year lease. As always, it's prudent for tenants to consult a tenant representative broker and legal professional when drafting and negotiating lease terms for a property.
How Can You Negotiate Better Commercial Lease Terms?
Effective lease negotiations can lower your costs and reduce unexpected fees. Here are some strategies to help you get the best deal.
What Are Escalation Clauses?
An escalation clause adjusts your rent when operating costs change. This clause can increase your rent if taxes or maintenance fees rise. Negotiate a cap on these increases so your extra costs remain predictable.
Key Negotiation Tips for Lease Agreements
Use these tips to improve your lease terms:
- Set Expense Caps: Ask for a limit on how much extra cost you will pay beyond the base rent.
- Request a Clear Breakdown: Insist on a detailed list of operating expenses to understand every cost you will incur.
- Negotiate Fixed Rates: Where possible, secure fixed rates for utilities and maintenance to make monthly costs easier to budget.
- Review Escalation Clauses: Check how rent adjustments are calculated and negotiate for clear, fair terms.
Lease Comparison Chart
A simple chart can help you compare lease types quickly. This chart shows what you pay as a tenant versus what the landlord covers:
Lease Type | Tenant Pays | Landlord Pays |
---|---|---|
Gross Lease | Base rent and utilities | All operating expenses (taxes, maintenance, etc.) |
Modified Gross Lease | Base rent, utilities, and some negotiated operating costs | The remaining operating costs |
Net Lease | Lower base rent plus a share of property expenses (taxes, insurance, maintenance) | Varies by subtype, typically some building expenses |
Percentage Lease | Base rent plus a percentage of sales | Often covers a portion of operating costs |
How Can You Manage Risks in Your Commercial Lease?
Review Repair and Maintenance Responsibilities
Clear repair and maintenance clauses prevent disputes over unexpected costs. Ensure the lease clearly states who pays for repairs and maintenance. Request specific examples if needed.
Consult a Professional
Experts can help spot risks you might miss. Work with a tenant broker or attorney to review the lease and flag potential issues.
Budget for Contingencies
A contingency fund can cover costs that arise unexpectedly. Set aside a portion of your budget for unforeseen expenses so you can manage surprises without stress.
Closing Thoughts
In addition to choosing the right lease structure, it's also important to consider the difference between usable square feet and rentable square feet. This distinction, which includes the "load factor" or "loss factor," refers to the shared spaces—like lobbies, hallways, and restrooms—that tenants pay for on a pro-rata basis. Factoring these shared costs into your budget can provide a more accurate estimate of your overall expenses.
Now that you understand the different types of commercial leases, you're better equipped to make informed decisions about your next business space. Each lease type offers unique advantages and considerations, so it's crucial to carefully evaluate your options. To explore available properties and find the right fit for your business, browse available commercial real estate for lease.
Commercial Real Estate For Lease
This article was updated on 2/7/2025