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Net and gross leases

| Sep 7, 2020 | Real Estate |

Contracts between property owners and tenants for commercial property must address not only the payment of rent but also the costs associated with overall building maintenance and upkeep.

Property taxes, property insurance, repairs and cleaning must all be paid for by either the landlord or the property owner. The agreement parties reach may align with the type of lease they select.

Net leases and landlord responsibility

As explained by The Motley Fool, some commercial lease agreements may put the lion’s share of the responsibility for operating costs on the landlord rather than on the property owner. These contracts are referred to as net leases and they come in multiple versions.

An absolute net lease requires the tenant to cover all costs for the building, including interior and exterior maintenance, taxes, insurance and rent. A net lease may be structured in a way that some cost responsibility shifts to the building owner. Depending on which costs the owner must pay, the contract may be a single net lease, a double net lease or a triple net lease.

Gross leases and owner responsibility

According to the Small Business Chronicle, a gross lease requires the property owner to pay for all costs associated with the building while the tenant pays only a regular cost for rent.

In exchange for taking on more costs associated with building upkeep and liability, the property owner may charge a higher rate for rent. As with a net lease, a gross lease may share some responsibility between the parties. This may lead to the development of a modified gross lease.