Nothing But “Net”, and Other Lease Types

If you are out in the market looking for space you may notice there is a huge gap in rental prices. We agree, the market today is very volatile and landlords have all sorts of different prices that they are willing to accept. However the biggest question you should ask yourself is if you lease “what else are you going to pay for”?

Each month when you as a tenant write a check to the landlord that may only cover a portion of the rental obligation. Depending on the type of lease you may have to write more checks. The spectrum of leases looks like this:

Full Service

Gross

Modified Gross (or Modified Net)

Triple Net

As you move from the top of the list to the bottom you will find the tenant comes out of pocket for more of the expenses. At the bottom there is the triple net lease; in this lease the tenant has to pay a base rent and additional rent for all expenses associated with the space (taxes, plowing, building insurance etc). In a modified gross scenario both parties agree that the expenses should be divide somehow. Perhaps the landlord pays for the taxes and insurance, but the tenant pays for the utilities. When we move up to a gross rent, the landlord is now paying for most all of the expenses and the tenant is writing one check only to the landlord. However, the tenant may still have to pay for the increases of these expenses over time. A full service lease is a gross lease on steroids (my apologies to major league baseball). Full service denotes a single payment to a landlord from the tenant, but the landlord is adding in some items that may not be typical such as interior cleaning or data.  But these are all hypothetical at it is important to review your lease to see what is or is not included.

In the end most people look at these leases and think that one is more or less expensive that the other. The reality is that the lease type has little bearing on the overall expense. If two buildings were exactly the same across the street from one another, except one was triple net and the other was marketed as full gross, our experience would tell us that in the end the total payments made by the tenant to the landlord would be about the same. The big difference is in the risk on the expenses. On a triple net lease, the tenant has the most exposure to the increases in taxes and other common fees. Depending on how your gross lease is written, you may have all or only partial exposure to these risks.

There are no guarantees and leasing is no exception. As such there are no “standards” when it comes to lease language, you must consult your own lease and your own counsel if necessary.  However, our team is always available should you have any questions on this clause or any other’s in your lease, we will be happy to point in the right direction.