Effective Legal Resolutions, Done Efficiently

The types of commercial real estate lease agreements

On Behalf of | Feb 13, 2024 | Commercial Real Estate

Residential leases are fairly straightforward. The tenant pays their rent and utility bills, and the landlord covers maintenance, repairs, property taxes and insurance. Commercial leases are more complex and come in many forms. Gross commercial leases are similar to residential leases, but most California parties that rent offices, stores or warehouses sign some form of net lease. These leases require commercial tenants to pay some of the expenses that would normally be a residential landlord’s responsibility, which is why the rent commercial landlords place in their advertising can be much lower than the amount their tenants wind up paying each month.

Single and double-net leases

Commercial tenants that sign single-net leases are responsible for covering the costs of utilities and janitorial services. This means that the amount they pay can vary from month to month. These tenants also pay some or all of the building’s property taxes. A double-net commercial lease adds the cost of property insurance premiums to the tenant’s base rent. Commercial landlords who offer their tenants single or double-net leases cover the costs of maintaining the building’s common areas and pay for maintenance and repairs.

Triple-net and absolute triple-net leases

Triple-net commercial leases require tenants to pay for just about all of the costs of operating and maintaining the building. These costs include common area maintenance, landscaping, trash collection, sewer and water bills and property management fees. Absolute triple-net leases are rare in the commercial real property sector. These leases make the tenant responsible for unanticipated expenses like construction costs. A tenant who signs an absolute triple-net lease would have to pay for construction even if the building was damaged or destroyed by a weather event or other natural disaster.

Comparing commercial leases

Commercial tenants should ask plenty of questions and read the fine print before they sign commercial leases. There are several types of commercial real estate leases, and most of them require tenants to cover costs and expenses that residential landlords are usually responsible for. Expenses commonly paid by commercial tenants include property tax payments, insurance premiums, utility bills and janitorial costs.