Commercial Leases
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Commercial Leases
Understanding commercial leases is key to the success of your business. Who pays property taxes on a commercial lease? Who pays insurance? That’s critical to understanding both your responsibilities and your risk as a tenant or landlord.
8 Types of Commercial Real Estate Leases
The breakdown of property expenses is the main differentiator among commercial real estate leases. In some, the landlord assumes all responsibility (and costs) for maintaining, powering, and insuring the property, while in others, tenants do — either in full or in part.
Eight most common commercial leases:
| LEASE TYPE | TENANT PAYS | LANDLORD PAYS |
| Gross | Rent | Taxes Insurance All utilities and maintenance of entire building |
| Modified Gross | Rent Utilities and maintenance of individual units | Taxes Insurance Utilities and maintenance of common areas |
| Net | Rent Utilities Fixed portion of operating expenses | Varies depending on what type of net lease |
| Single Net | Rent Utilities Fixed portion of property taxes | Portion of taxes Property insurance Utilities and maintenance of common areas Repairs |
| Double Net | Rent Utilities Fixed portion of property taxes and insurance | Portion of taxes and insurance Utilities and maintenance of common areas Repairs |
| Triple Net | Rent Utilities Fixed portion of property taxes, insurance, and common area maintenance | Portion of taxes, insurance, and common area maintenance Repairs |
| Absolute Net | Rent All property taxes, insurance, utilities, common area maintenance, and repairs | None |
| Percentage | Rent Percentage of monthly sales | Taxes Insurance All utilities and maintenance of entire building |
Gross Lease
Also called a “full service” lease, gross leases put all operating expenses in the landlord’s hands. These include taxes, utilities, maintenance (outside and in), cleaning, and insuring the property, while tenants only pay a basic rent.
Modified Gross Lease
A modified gross lease is one step down from a gross or full service lease, requiring the landlord to handle insuring the property and maintaining common areas, but leaving the utilities, cleaning, and maintenance of individual units to the tenant. The tenant also pays a base rent.
Net Lease
With a net lease, the tenant pays rent plus a fixed fee for operating expenses — things like common area maintenance, taxes, insurance, etc. There are 4 different types of net leases (see below).
Single Net Lease (N Lease)
In a single net lease, the tenant pays their rent, plus a share of the property tax burden. They’re also responsible for the utility costs, maintenance, and other fees associated with their individual unit.
Double Net Lease (NN Lease)
A double net lease is one step above a single net lease. In addition to paying rent and a share of the property taxes, they also pay a portion of the property’s insurance premiums.
Double Net Lease (NN Lease)
A double net lease is one step above a single net lease. In addition to paying rent and a share of the property taxes, they also pay a portion of the property’s insurance premiums.
Triple Net Lease (NNN Lease)
Triple net leases are one of the most widely used types of commercial real estate leases. In this arrangement, the tenant pays rent, a share of property taxes, a share of insurance, and a fixed fee for common area maintenance and operating expenses.
Absolute Net Lease
Also called an absolute lease or an absolute triple net lease, these agreements put all of the building’s financial responsibilities on the tenant, including taxes, maintenance, insurance, repairs, and more. This gives them control and freedom on the property, but it also means full liability in the event of a catastrophe or total loss.
Percentage Lease
This is a common lease in shopping centers in malls and retail spaces, requiring tenants to pay a base rent, plus a percentage of their monthly sales. The percentage goes toward building operating expenses and maintenance, though there is no set fee for these costs.