The Different Types of Commercial Leases
Full Service Lease
Full Service – typically means the asking rental rate of the property includes all operating expenses the property such as janitorial services, property maintenance, utilities, and property taxes. This is the simplest and most transparent form of a commercial lease and is most common in multi-tenant office properties catering to smaller tenants. While a full service lease has the vast majority of additional operating expenses already included in the monthly rent, the language within the lease sometimes states that the landlord has the right to pass down to the tenants any future increases in those expenses on a pro rata basis. So, as an example, during the summer months when a building will typically push out more air conditioning, the property’s A/C expense will likely be over what they estimate (based on previous year’s) and the tenants will receive a bill.
Modified Gross Lease
This is similar to a Full Service Lease, but with individual expense exceptions. It is often applied to office or retail space when individual leased portions of a property have a common meter for electricity or water. Sometimes referred to as “Industrial Gross”, this type of lease is often used with industrial or warehouse space. In these cases, tenants of industrial properties will have a full service lease that’s been modified so that some of the expense categories (usually electrical) will be charged in addition to monthly rent. All other property expenses are already included in the regular monthly rent.
Triple Net Lease
A Triple Net (NNN) Lease applies to properties whose asking rental rate is not inclusive of the additional operating expenses tenants can expect to incur renting space. Net leases are very common in retail properties or free standing properties. Regarding expenses, this type of lease is not dissimilar to actual ownership of the building. The “net” operating expenses include such items as utilities, maintenance, property taxes, insurance and sometimes management. Landlords typically bill their tenants each month for these extra expenses in addition to the rent. These additional operating expenses can vary from property to property, but prospective tenants can typically add from $2 to as much as $15 per square foot in annual rental rates to get an idea of total cost picture.
With a Percentage Lease the tenant is responsible for paying base rent on the property, as well as a monthly percent of revenue earned from the business occupying the rented space. They are more often used in retail spaces and malls.