net lease vs gross lease

Net Leases vs. Gross Leases: Which One is Right for My Business?

If you are not too sure about the type of lease you should have for your business, it can put you at a significant disadvantage. When looking to lease vacant space, the two most common types of leases you will come across are net leases and gross leases.

You should talk to an experienced real estate attorney if you are unsure about the most appropriate lease option for your business. Working with an attorney will help clear up any confusion you may have about which lease is right in your situation.

Gross Commercial Leases in Alabama

A gross lease is believed to be a tenant-friendly lease since the rent amount is all-inclusive. Most expenses associated with occupying the space will be covered in the monthly rent amount. This includes janitorial services and utilities. In some cases, the lease may also include taxes and property insurance. Pertaining to this, you need to negotiate gross leases carefully. You need to look out for limits set on power consumption and other similar aspects.

Net Commercial Leases in Alabama

Triple net leases are the most common form of net leases for commercial space. These are considered to be landlord-friendlier. You don’t just pay rent for the space occupied, but you are also responsible for the maintenance of common areas, insurance, and taxes. Common services usually include paying for janitorial services to maintain lobbies and parking lots.

As a tenant, you will be required to pay the base amount (which is the rent) in addition to a proportionate amount of the three “nets” – insurance, property taxes, and common areas maintenance. Typically, tenants and landlords reconcile any additional rent paid with the actual amount of expenses at the end of the lease year.

You need to look out for any increases in the additional rent amount. You may want to negotiate to place caps to ensure you don’t get locked into a lease with unacceptable levels of rate increases. The lion’s share of responsibility is placed on the tenant in triple net leases.

You can make informed decisions on leasing commercial property by assessing the operating expenses in a transparent manner. In fact, you may just end up paying less than what you would have had to pay in a gross lease. After all, landlords stake gross leases high enough to acquire a buffer for covering overhead costs.

Key Differences between Gross Leases and Net Leases

There are reasons why you may prefer one lease structure over the other even though full-service leases (gross leases) and net leases may cost roughly the same amount on face value. Triple net leases afford protection to both the tenant and landlord.

Your landlord gets protected if there is an increase in the NNN costs of operating the property since the increase gets passed over directly to you. In relation to this, you get the benefit of auditing common area maintenance expenses for ensuring that there is no lag in services and that you don’t break the budget in the process.

Gross leases have their pros and cons as well. Gross leases are easier and more streamlined. You don’t need to worry about the whole “base rent, additional rent” side of things associated with net leases.

Unfortunately, you won’t be able to audit the common area maintenance expenses, which means your commercial landlord may cut corners in order to increase profits. It may prove to be bad for your business if the landlord fails to properly maintain the curb appeal of the property, especially if you are a customer-facing business.

Choosing the Right Lease

The difference between choosing a gross lease or a net lease can be the difference between a financially locked-in state of misery or successful tenancy. There is no cookie-cutter approach to finding the perfect lease. This is why you should consult an experienced real estate attorney before signing anything.

Both leases have their specific pros and cons and can be good in different types of leasing scenarios. Furthermore, you need to base your decision on the type of commercial property being rented, the sophistication of the landlord, and the investment strategy.

A gross lease may be the right choice if you don’t want the additional responsibility of overseeing maintenance and other things. You can have everything the way you want by paying a single amount each month.

This will allow you more time to concentrate on the business side of things. On the other hand, you won’t have any control over the cost and other aspects of the property.

You may want to consider a triple net lease if you prefer having an increased degree of control even if it means more responsibility. When choosing between different properties, you need to make sure you look at the type of lease. For instance, a net lease will have additional costs associated with it whereas a gross lease will have an all-inclusive cost element.

Our Seasoned Real Estate Lawyers are Here to Help You

The experienced attorneys at Davis, Bingham, Hudson & Buckner, P.C. can help you make the right property lease decision after assessing your individual expectations. Our lawyers will look at your particular situation from every angle of commercial real estate law in order to protect your interests.

To schedule a consultation with one of our legal professionals, please call (334) 458-8192 or use our online form.


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