Understanding common commercial lease terms

| Mar 17, 2021 | Real estate transactions

Commercial tenants often have lease structures that vary greatly from what most people are accustomed to for residential leases. In many commercial leases, the tenant takes on one or more of the operating expenses of the building they occupy.

What the tenant is responsible for is denoted in the type of “net lease” they sign. Let’s take a look at those.

3 types of net leases

There are three types of net leases – single, double and triple. In each of these, the tenant is responsible for rent plus certain other expenses.

  • Single net lease: This type of lease requires the tenant to pay a base rent plus the property taxes for their portion of the building.
  • Double net lease: A double net lease requires the tenant to pay base rent plus the property taxes and insurance for their portion of the building.
  • Triple net lease: This lease shifts most of the financial responsibility for the property to the tenant by having them pay a base rent plus property taxes, insurance, and maintenance for their portion of the building.

In all those net lease agreements, the commercial tenant is also responsible for paying the utilities on the property. In some cases, there are other financial obligations for the tenant. Some may be required to provide the landlord with a percentage of their profits. This is common with retail and restaurant spaces.

Landlords and tenants must ensure that their rights and interests are being respected in these leases. Having an attorney review the terms of the lease is imperative for both sides, especially if there were negotiations that led to the terms of the lease.