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The Seven Types of Commercial Leases, Explained

April 9, 2019 | by Jo Cipolla

A landlord can use one of several different lease types when renting office space. Understanding the differences between each will make you smarter during negotiations and help your company better budget monthly expenses.

The specifics for each lease type are listed below, but note that while each lease category will provide a sense of the tenant’s expected expenses, it is only a sense—there are no absolute rules. Every lease is negotiable, so a thorough review of the lease with your broker and attorney is the only way to know for certain which expenses fall under your purview.

 

Full Service, a.k.a. “Gross Lease”

Tenants pay: Base rent and nothing more.
Landlord pays: All building expenses, including maintenance costs, insurance, and real estate taxes.
Thing to know: The landlord may recoup costs through the building’s load factor, i.e. an extra rent to use the building’s common areas.
Typical usage: Any commercial space.


Triple Net Lease

Tenants pay: Rent and their pro-rata share of all of the building’s operating expenses, including maintenance fees, building insurance and property taxes.
Landlord pays: Base building maintenance and repairs
Thing to know: This is essentially the opposite of a gross lease. Also, sometimes “absolute lease” and “triple net lease” are used interchangeably. But they are not the same.
Typical usage: Any commercial space.


Double Net Lease

Tenants pay: Rent plus property taxes and building insurance premiums.
Landlord pays: Maintenance costs.
Thing to know: Also called a “net net” lease.
Typical usage: Any commercial space.

 

Net Lease

Tenants pay: Rent plus a portion (if not all) of the building’s operating expenses—property taxes, insurance and maintenance.
Landlord pays: The other part of the expenses (if applicable).
Thing to know: The specific percentage will be stipulated in the lease.
Typical usage: Any commercial space.


Modified Gross Lease

Tenants pay: Base rent for the first calendar year of lease. After that, tenants pay a pro rata share of the building’s operating costs. So a tenant occupying 50% of a building would be responsible for 50% of its operating costs.
Landlord pays: Operating costs for the first year.
Thing to know: The first year of a lease is known as a base year.
Typical usage: Any commercial space.

 

Absolute Lease

Tenants pay: All building expenses, including any maintenance or repairs to the building’s roof and structure.
Landlord pays: Nothing. They have no responsibility for building costs.
Thing to know: This lease usually applies only to tenants with national or regional footprints—and excellent credit.
Typical usage: Long-term leases to credit tenants.

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