Understanding Commercial Lease Types: A Simple Guide for Small Business Tenants
If you’re a small business owner looking to lease space, understanding your lease type is important.
It affects how much you’ll pay each month and what extra costs you might have. There are three main types:
Gross Leases, Net Leases, and Modified Gross Leases. Here’s a simple breakdown to help you choose the right one for your business.
Gross Lease (Full-Service Lease)
Why Tenants Like It:
- Easy to budget—your rent stays the same.
- No surprise costs for building upkeep.
What to Watch For:
- Rent may be higher because the landlord includes all costs.
- Less control over maintenance and services.
- You may still pay for your electricity and any rent increases after the first year.
Net Lease (Tenant Covers More Costs)
A Net Lease means the tenant pays rent plus some or all of the building’s expenses. There are three types:
- Single Net Lease (N Lease): You pay rent and property taxes. The landlord covers insurance and maintenance.
- Double Net Lease (NN Lease): You pay rent, property taxes, and insurance. The landlord covers maintenance.
- Triple Net Lease (NNN Lease): You pay rent, property taxes, insurance, and maintenance. NNN Leases are by far the most common in any larger commercial real estate property, especially in retail, office buildings, shopping centers, and industrial spaces.
- More predictable costs than a Net Lease.
- Some flexibility to negotiate terms.
What To Watch For:
- Every Modified Gross Lease is different, so read the fine print.
- Unexpected costs might still come up.
Good To Know:
- Some landlords include costs in the rent, while others bill tenants separately.
Modified Gross Lease (A Middle Ground)
A Modified Gross Lease is a mix of a Gross and Net Lease. You pay base rent plus some expenses (like utilities or common area maintenance), but the landlord covers the rest.
- More predictable costs than a Net Lease.
- Some flexibility to negotiate terms.
What to Watch For:
- Every Modified Gross Lease is different, so read the fine print.
- Unexpected costs might still come up.
Good to Know:
- Some landlords include costs in the rent, while others bill tenants separately.
How to Pick the Right Lease for Your Business
- Need stable costs? Go with a Gross Lease.
- Want more control over expenses? A Net Lease might be better.
- Looking for a balance? A Modified Gross Lease could be the best fit.
Before signing anything, make sure you understand the lease terms. Talking to a real estate expert can help you choose the best lease for your business needs.
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