The most common retail leases or types of retail leases are very important to know about. That is, if you plan to purchase commercial property to lease out as an investment. It’s also of utmost importance to understand the basics behind common retail leases. And, to know these contracts aren’t like their residential counterparts. In fact, there’s very little in common between the two. So, let’s take a look at the most common retail leases and what they entail.
About Commercial Space Retail Lease Types
First of all, although commercial retail leases share some commonalities, you’ll see not all are the same. Basically, these differ in arrangement between the landlord and tenant. Plus, most retail leases are negotiable. However, this doesn’t mean you’ll necessarily come up with the most favorable scenario. But, as a commercial property owner, you are in the driver’s seat. Meaning, it’s best to give a little to get a lot more in the long-term.
There are different types of commercial leases and a number of abbreviations that differ in meaning and usage depending on who’s using them. When it comes to commercial leases, there are several basic structures that equate to what the tenant is responsible for paying besides rent each month… —Forbes.com
Some commercial retail tenants will come to the table with a month-to-month proposal. At first, this seems like a bad deal for the property owner. However, it’s actually a good thing. You can charge a higher rate in exchange, the tenant is free to vacate the premises if the business doesn’t work out. Of course, this won’t be true for every prospective tenant. Most will go with a longer commitment.
Most Common Retail Leases for Commercial Properties
As a commercial property owner, you need to know the basics of commercial leases. As with any legal contract, it’s smart to understand your obligations, as well as the responsibilities of your tenants. And, how the most common retail leases are structured:
- Single net lease. A single net lease, or net lease, is an arrangement where the tenant pay for utilities and property taxes. You as the landlord must pay for routine maintenance, any necessary repairs, along with insurance.
- Double net or NN lease. A double net or NN lease is similar. The tenant pays for utilities and property taxes. But also, the tenant pays the insurance premiums. The property owner pays for maintenance and repairs.
- Triple net or NNN lease. A triple net or NNN lease differs in that the tenant pay for all building costs. However, the property owner must pay for any structural repairs. So, the tenant pays the insurance, utilities, routine maintenance, and taxes.
- Full-service gross or modified lease. A full-service gross or modified gross lease is an arrangement where the tenant and property owner split operational costs. Meaning, splitting taxes, insurance, common area maintenance, and utilities.