Types of Leases

As you are moving through the world of commercial leases, you may be coming across different terms and types of agreements that are unfamiliar to you. As a small business owner, you want to make sure you are entering the type of lease agreement that meets your long-term needs. When evaluating any agreement, it is important to compare the different lease options and understand all possible expenses, and not just the montly rental amount.

An important rule to follow is to always read your commercial lease carefully, and clarify exactly what expense you will be expected to pay. If there are additional charges in which you will be responsible, they should be clearly identified in some manner such as put in all capital letters, highlighted, and requiring you to initial next to each provision.

Follow along as FindLaw defines each type of lease and their key provisions. If you need more information, visiting our Small Business section.

Types of Leases 

Flat or Fixed Leases

  • A single rent is set for a definite period of time.

Gross Leases

  • The tenant pays a flat monthly amount.
  • The landlord pays for all operating costs for the building.
  • In some cases, the tenant pays for its electricity, heat, and air conditioning.
  • This type of lease often contains an escalation clause that allows the landlord to increase the rent annually to offset increased expenses.

Step Leases

  • The rent is increased at a set amount on an annual basis during the life of the agreement.
  • The increase is to cover the landlord's expected increases in expenses.
  • The increase is based on estimated rather than actual costs.

Cost-of-Living Leases

  • The rent is tied to rises in the cost of living.
  • The rent goes up with general inflation.

Net Leases

  • The tenant pays a base monthly rent plus some of the expenses.
  • The increases are based on actual costs rather than on estimates.
  • The rent increases at the time that the landlord incurs an increase in costs.
  • In some cases, the tenant pays rent plus all of the real estate taxes.
  • If leasing only a portion of the building, the tenant will pay a proportionate share of the taxes.

Net-Net Leases

  • The tenant pays the base rental amount, real estate taxes, and insurance premiums.
  • The insurance and real estate taxes are allocated among the tenants based on the proportion of space occupied.

Net-Net-Net Leases

  • The tenant pays the base rental amount plus the landlord's operating costs.
  • Included in this amount are real estate taxes, insurance, maintenance, and repairs.

Percentage Leases

  • The tenant pays either a base amount and a percentage of gross income or, depending on which is higher, pays a base amount or a percentage of the business's gross income.

How a Lawyer Can Put You on the Right Track

A business and commercial law attorney can illuminate the ideas behind each type of lease agreement and negotiate on your behalf. Be sure to have a qualified lawyer review any commercial lease agreement before you sign it to make sure your rights are being preserved.

Next Steps

Contact a qualified business attorney to help you address you business's operational needs.

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