People lease commercial real estate properties using either a gross lease or modified gross lease or a net lease. Residential properties are usually leased under a gross lease with the exception of the utility expenses. A gross lease is also referred to as a pass-through lease or a full service lease. When a tenant leases a property using a gross lease, he pays a gross rent and the landlord has to pay the operating costs of the building risking rising operating expenses over the duration of the lease. A net lease refers to a lease where the lessee is responsible to pay for the taxes, insurance and maintenance of the property.
Types of Gross Lease: Full Service Gross Lease: In this kind of lease, the landlord is responsible for the payment of taxes, maintenance, insurance and utilities. All these expenses are included in the base rent paid by the tenant. The lessee is responsible for any property insurance, taxes and utility expenses beyond the permitted building standards. The lessee has to agree to pay his share of any increase in the operating expenses of the building.
Modified Gross Lease: In a modified gross lease, which is similar to a full service gross lease, except that certain basic services such as taxes, maintenance, insurance, janitorial services, electrical services etc. are excluded from the lease. This type of lease is commonly used in multi-tenant buildings where there are different tenants with different needs.
Commercial Gross Lease: The lessee pays the landlord a fixed monthly rent and the landlord is responsible to pay for the operating expenses of the building and its maintenance. The lessee pays for the utilities, maintenance, operating expenses, taxes as well as janitorial services. Industrial Gross Lease: The landlord leases an entire industrial building to a tenant. The tenant has to use the building as per the agreement in the lease, manufacturing and distributing and maintaining an office in it. The landlord will be responsible to pay for the maintenance, operating costs, taxes, insurance, utilities etc. that will be paid for by the lessee in the base rent.
The landlord has to take precaution against lessees with deceitful intent and make sure they verify any information provided by the lessee before signing the lease. The lessee, especially in a commercial building, has to make sure to find out if the lease includes only his office space or also parts of common area such as, hallways etc. The lessee has to make sure that he studies the terms of the lease carefully to ensure he is not paying for something that is not connected with his office space as if a new hallway built in another floor!
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Alexander Gordon is a writer for http://www.smallbusinessconsulting.com – The Small Business Consulting Community. Sign-up for the free success steps newsletter and get our booklet valued at $24.95 for free as a special bonus. The newsletter provides daily strategies on starting and significantly growing a business.
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