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Types of Commercial Leases

by Lynn Blakeley

Commercial property leases in the U.S. are  typically categorized or described based on how certain property-related expenses are treated under the lease. The two ends of the spectrum are the "gross" lease and the "net" lease.

Under a true gross lease (also known as a "full service" lease) the landlord pays all expenses, including property taxes, utilities, and even janitorial services.  This is  type of lease is often encountered in office leasing.  At the other extreme is the net lease, where the tenant is expected to pay for such expenses. You will frequently see these leases referred to as "triple net" or "NNN"  because the tenant agrees to pay a proportional share of property taxes, building insurance, and maintenance (the three "Nets").  

Triple net leases are typical in a retail environment.  Note that while only  three major categories of expenses are referred to by the shorthand term "triple net", the tenant will usually be  responsible for all other expenses relating to its premises, including utilities and janitorial.

If a triple net lease involves an entire freestanding building, the tenant may be expected to directly pay  property taxes and insurance bills  and to perform and pay for all maintenance.  In a shopping center or other mult-tenant situation, the landlord will usually bill the tenant for its proportional share of these expenses.  When marketing such properties, landlords will often quote a per-foot rate for the shared expenses.  This figure is necessary in order to calculate the tenant's actual occupancy cost. 

Note also that while the gross lease is most common in office leasing, many newer buildings are going to a triple net format.  When comparing square foot prices for different properties, be sure you're comparing apples to apples.

Calculating your monthly expense under a triple net lease is not difficult, but there are a couple of steps involved. First, take the annual "per square foot" price and multiply that times the number of square feet you are considering. Next, make the same calculation with regard to the ""per square foot" triple net expense figure provided by the landlord.  Add these two figures together and you will get your annual expense.  Divide by 12 for your monthly expense.  You can also use our handy rent calculator.

Questions about Office Leasing?

In the posts below we address many of the issues that routinely come up in office leasing. Check out the posts or just give us a call to discuss your specific concerns: 210.349.6111.

How Tenant Rep Brokers Get Paid

Rentable Square Feet and the Common Area Factor

The ABC's of Building Class

It's All about the Base

How much Office Space Do You Need?

Lynn Blakeley represents tenants in office lease transactions. Call Lynn at:

210.349.6111.