July 25, 2022

Understanding the Different Types of Commercial Leases

Most individuals and organizations that invest in commercial real estate will then rent their property to businesses looking to operate out of their space. Once you’ve found the perfect piece of commercial real estate property, you want to work with a commercial realty group that can provide reliable owner representation services. When you partner with the right firm, you can attract the most qualified tenants. This will allow you to simultaneously generate the largest possible return on your commercial real estate investment.

What Are the Types of Commercial Leases?

Drafting a commercial lease is different from creating a residential lease agreement. Not only are buildings used for different purposes, but commercial tenants also have differing rights on the property than residential tenants do. It’s incredibly important to have the appropriate lease agreement in place, as this protects your assets and reduces your liability as a commercial property investor.

It is recommended that you work with professionals who have experience drafting commercial lease agreements to create the document that is right for both your property and your overall investment.

  • Triple Net Lease. The triple net lease is often considered the gold standard by commercial property owners/investors. This largely is because the “NNN lease,” requires the tenant to pay for rent, property taxes, maintenance, insurance, and utilities. It is the best way to cover all costs of owning and operating the building and generate a significant return on your investment. It’s an ideal leasing agreement for a commercial property owner/investor who prefers a more hands-off approach to their investments. This type of lease is most common with retail and single tenant properties.
  • Full-Service Gross Lease. When a full-service gross lease is in place, the tenant is required to pay a flat, fixed rental payment. This type of lease agreement is popular among tenants, however will require the commercial property owner/investor’s  full attention as you may be more involved in the daily operations of the building.  This type of lease is most common in multi-tenant office properties.
  • Modified Gross Lease. A modified gross lease is similar to a full-service gross lease, but there is more flexibility for the property owner to increase the rental payment. With this lease, you can increase the cost of rent if there are incremental costs associated with operating the building. For example, if your property taxes or insurance costs increase, you can in turn pass this new payment value on to your tenant.

At Rakow Commercial Realty Group, we pride ourselves on providing expert commercial real estate services to our clients. Not only will we help you secure the perfect property for your investment needs, but we also offer innovative owner representation services to ensure that your investment yields the most optional returns .

For more information about Rakow Commercial Realty Group and the services that we provide, learn more on our website.

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