Whether you're looking at commercial real estate properties to use or you wish to lease one out, it can be advantageous to understand the different types of agreements that owners and tenants frequently enter into. Depending on the type of business you intend to run, one of these setups may favor your interests.
The idea behind a percentage lease is that a tenant will pay a set rent, usually fairly low, and then also pay the landlord a percentage of their sales from each month. This is a common approach that's utilized in retail, and it's frequently employed by businesses that move into malls. This arrangement can be advantageous if tenants are worried that seasonal fluctuations in their income may make paying rent in slow months difficult.
There are three types of net leases, referred to as single-, double-, and triple-net leases. Expenses are broken up into three categories of nets: taxes, insurance, and maintenance. In all three arrangements, the tenant pays rent. A single-net lease implies the tenant pays any one of the three nets, a double-net lease means they pay two out of three, and a triple-net means they pay all three. These types of setups are highly favorable to owners, and tenants generally don't enter into them unless they're gaining access to a location that's very in-demand.
In this arrangement, the landlord is expected to pay almost all costs, and this may even include paying for utility bills. The total value of all these expenses is then passed along to the tenant as part of their rent. It's a common arrangement for offices, especially ones that expect to have very even expenses over their periods of occupancy. You may also see it used in for industrial properties.
An absolute lease is similar to a triple-net lease, but the tenant takes on all responsibility for the building. This includes covering construction expenses. You'll see these types of leases made when a major retailer opens up a new store in an area, and they tend to be for fairly long terms.
The landlord will often have a commercial real estate broker representing their interests, and it may be wise for prospective tenants to hire agents to assist them. Most brokers will be upfront about the type of lease they prefer, but don't hesitate to negotiate if you like the property.Share