Tag: leasing

Commercial Real Estate Leases: The Basics

Leases: The Basics

 

Whether you are a property owner with leasable land or space or an individual looking for space to lease, it’s important to know the basics of the types of leases that are most common in the commercial real estate world.

Gross Lease

In a gross lease (also known as a full-service lease) the tenant pays a flat monthly rate while the landlord remains responsible for all operating costs of the property including taxes, insurance, and maintenance, as well as other expected costs, such as janitorial service. Because landlords must cover all of the property’s operating costs, the rental rate for gross leases is generally higher than for a net lease. In exchange for paying a higher rate, the tenant has the security of a fixed monthly rent payment, minimizing the possibility for variations in their operating costs, making budgeting more predictable and less complicated.

Net Leases

Net leases shift some or all the operating costs associated with a property to the tenants, and tenants are responsible for that cost in addition to their regular rent. There are three types of net leases: single, double, and triple. Tenants with a single net lease are responsible for one of the operating costs associated with the property, generally the property taxes. With a double net (net-net) lease, the tenant assumes the cost of two of the operating costs, generally the property taxes and insurance. With a triple net (NNN) lease, the tenant assumes all of the property’s operating costs, which include taxes, insurance, and all maintenance costs. Lastly, there is a variation of the triple net lease called absolute net lease (also known as a bondable lease). This type of lease relieves the property owner/investor from all financial obligations and risks associated with the property, including taxes, insurance, structural maintenance, and debt liability. All those obligations are passed on to the tenant normally in exchange for a lower base rent.

Benefits of Net Leases

From the landlord’s perspective, entering into a net lease can simplify the management and operation of the property, which can be especially beneficial if they own multiple properties. Furthermore, net lease rates are typically made for longer terms, which gives the landlord the benefit of long and stable income from the property.

Because net lease tenants assume more of the unpredictable costs associated with maintaining the property, their base rent is often at a reduced market rate. This can mean considerable savings in rent over the long term of the lease. While annual rent increases may be built into the lease agreement, they usually remain below the rate one would pay with a gross lease.

Ground Lease

Yet another variation of a net lease is a ground lease. An owner with undeveloped land may enter into a ground lease in which the lessee agrees to incur the cost of developing the property (i.e., construct a building or business on the land) and in exchange, pays only a NNN lease on the land. Ground lease terms are long, generally 50 to 99 years, but when the lease term ends, the ownership of the both the building and the land revert to the owner.

Negotiating a Lease

Before entering into a lease agreement as “lessor” or “lessee”, know your options so that you can benefit the most from the deal. Agents at Kelley Commercial Partners have the knowledge and experience to walk you through the process and negotiate with your best interests in mind.

Advantages of consulting with a tenant broker

When you’re searching for office, retail, warehouse, or any other type of commercial real estate space to lease, finding the right property to match your needs can feel a bit overwhelming, which is why contacting a knowledgeable tenant broker is the best place to start. Tenant brokers understand current market trends and are equipped with the tools and knowledge to successfully guide you through the leasing process from start to finish. 

Kelley Commercial Partners’ tenant brokers have the expertise to make your search for space less daunting. They have the latest information about market conditions and space availability to help narrow your options so you can make a choice with confidence. Working with a tenant broker at Kelley Commercial Partners means you have an expert on your side who can not only save you time and energy but can also save you money.

Tenant broker processThe first step in our process is to schedule an appointment with you to discuss your specific needs. Matt Strom, a KCP agent in our Northwest office says this a crucial step because having a thorough understanding of a client’s needs helps to streamline the process of securing the right space for their business.

Once the ideal space is found, tenant brokers will help you negotiate with landlords to secure the space at the best possible price. And the best part of all? Tenant broker services are done at no cost to you! “Many clients don’t know that a tenant broker’s services are free to them,” said Strom. When a lease has been executed, tenant brokers’ fees are paid by the landlord. 

At Kelley Commercial Partners our brokers have a proven history of satisfied clients. Helping our clients find the right space to meet their unique needs and meet their commercial real estate goals is our top priority. Whether you are looking to lease, buy, sell, or develop commercial real estate, our team is available to guide you through the process.

If you would like us to assist you in your search for your ideal space, please contact us.