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12.03.2015

The different forms of commercial real estate leases in Indiana

For a new Indiana business, negotiating a favorable commercial lease can be critical to success. Similarly, when an existing business expands, getting favorable lease terms can make a significant difference on the bottom line. Leases for commercial real estate come in a variety of forms, and it is important for a potential tenant to understand the differences.

A “gross lease” is one in which the tenant makes a fixed total rent payment every month, and the landlord has responsibility for the costs of maintenance, property taxes and insurance. Gross leases vary as to whether the landlord or the tenant is responsible for utilities. The advantage of a gross lease is that the tenant knows the rent payment will be the same every month. The disadvantage is that the total payment tends to be higher.

The main alternative to a gross lease is a “net lease.” In a net lease, the tenant pays some or all of the building’s costs in addition to the base rent. A “single net lease” is one in which the tenant pays rent plus property taxes. In a “double net lease,” the tenant is responsible for rent plus property taxes and insurance. A tenant with a “triple net lease” pays for property taxes, insurance and maintenance in addition to rent.

Whether an entrepreneur is starting a new venture or planning a business expansion, businesses can benefit from learning more about the different forms of commercial lease agreements and the terms that are likely to be negotiable.

Source: Investopedia, “Gross Lease,” accessed Nov. 30, 2015