Leasing a Commercial Property

If you’re looking to lease a commercial property, you may be wondering about the process. In this post, we’ll briefly look over the lease types for commercial properties. Additionally, we’ll outline the responsibilities for each lease. To extend, we’ll make sure you know the importance of a Property Condition Assessment inspection relative to each lease. With certain leases, the tenant may not care about the property’s condition. However, an inspection is critical to the most common commercial lease types. 

Some lease types require relatively little from the tenant, while others may require much more responsibility and money. Though we’d advise an agent while negotiating a lease, we also know how beneficial it is to do background research. This post will help you understand the basics of some commercial lease types.

Later, we go through five common commercial lease types for tenants. When explaining the typical lease standards, we’ll also include the important information, such as:

• Who is the typical leasing owner?
• What are the typical tenant responsibilities?
• How much money does each lease take, upfront and for maintenance?

Net Leases (Single, Double, and Triple)

The most common lease type for commercial properties include a general lease- the net lease. Regardless of specific net lease types, the general lease requires tenants to pay for some or all of the property responsibilities. Usually, net leases have lower rent charges to compensate for the other costs.

Single-Net

The most common lease type, a single-net lease (also known as a net lease) usually puts one of the three responsibilities on the tenant. Single-net leases are commonly used to pass maintenance fees to the tenant, since owners most often don’t want to pay for property maintenance.

In addition to rent, tenants are usually responsible for the property taxes.

Owners typically pay for:

• Insurance fees
• Maintenance costs

Yet, every lease is unique. It is possible for tenants to be responsible for either one of the three responsibilities. 

Further, it’s important for the tenant to understand and document the condition of the property before or early in the lease. Though a tenant isn’t typically responsible for maintenance in a single-net lease, it may be wise to know your potential property’s condition.

If your single-net lease holds you responsible for property maintenance, then it’s even more important for you to understand the property condition. In order to be prepared, a Property Condition Assessment can estimate how much money you may need to invest in the future to maintain the property, such as a rooftop chiller or condenser. 

Double-Net

These leases are the next step of a single-net lease. Instead of tenants being responsible for just one of property responsibilities, they are responsible for two. These leases, commonly referred to as a net-net or NN lease, 

In addition to rent, tenants usually pay for two of these fees:

• Property taxes
• Insurance fees
• Maintenance costs

Double-net leases are more responsibility for the tenant than a single-net lease. Obviously, if you are responsible for the buildings maintenance then you should consider an inspection before you sign the lease. However, NN leases usually have lower rent than single-net leases.

Triple-Net

Triple-net leases, also known as NNN leases, are potentially risky commercial lease types. These leases pass all responsibility to the tenant. If you have a triple-net lease, you pay for all three monthly costs of a property. In addition to rent, this includes:

• Property taxes
• Insurance fees
• Maintenance costs

Owners who prefer a triple-net lease want no part in the maintenance or property costs. Sometimes, these owners are investors. Rent costs may be low, but tenants are responsible for most of the property. 

Because of the high responsibility, it’s critical for tenants to get a professional Property Condition Assessment early in the lease. Any damages to the property could result in legal matters, so get the property assessed. Additionally, MBI Inspections has worked with tenants signing triple-net leases.

Click here to reach out to us if you are interested in a pre-lease triple-net inspection.

Gross Lease

Another common commercial lease type includes gross leases. These are some of the most tenant-friendly leases. For example, tenants usually pay an agreed flat-rate fee. This blanket fee covers all building costs, such as property taxes, insurance, utilities, and maintenance costs. Sometimes, gross leases can be adjusted regularly by the lessor. 

However, tenants under a gross lease typically don’t have to conduct any maintenance to the property. Because of this, tenants don’t usually need an inspection to forecast any future maintenance fees. Still, it may be smart to get a baseline inspection in order to prove you left the property in good condition upon lease ending.

Percentage Lease

The percentage lease is similar to a gross lease, however it is unique to retail and revenue businesses. Percentage leases require tenants to pay a flat-rate cover at a set interval. In addition to the flat-rate, tenants also pay a percentage of any earned revenue conducted in the property. 

Again, tenants aren’t usually responsible for maintenance. These leases are often by owners as an incentive; cheaper rent in order to conduct business. Further, many percentage leases only start taking a cut of the gross revenue after a breakpoint.

An inspection is important to a percentage lease when the property is a foundation for sales. As stated before, it may be of interest to professionally document the property’s condition early in the lease. However, tenants aren’t usually held responsible for property care.

Reach Out to MBI Inspections

At MBI Inspections, we have inspected retail/strip malls, clinics, assisted living facilities, and more. We’ve conducted commercial inspection assessments for 12 years and counting, all across the country, with over 400 properties inspected. Regardless of lease terms, we aim to educate potential leasers about all the property’s components. Learn about our inspection services here.