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.
