The leases used to be perpetual in ancient times. However, things have changed over the course of time. Today, commercial real estate leases are usually term-based.
At this juncture, there are 3 types of commercial real estate leases available in India. A basic overview is required to negotiate the best possible deal at a time, when terminologies vary from place to place:
Known as a full-service lease, gross lease is a type of lease, wherein the landlord pays all the property expenses out of the rent received from the tenant. Taxes, insurance, and maintenance are included in such expenses. The tenant only concentrates on the business, while the landlord assumes responsibility of the building.
It is a type of lease, wherein the tenant pays for his occupied space and all or a certain part of the usual costs. Taxes, property insurance, property management fees or payment towards utilities are included in the list of such usual costs. The net lease is further classified into:
Single Net lease:
It requires the tenant to pay the rent, along with a portion of the property tax. Other than this, all the charges are managed by the landlord, excluding utilities and janitorial services.
Double Net Lease:
When it comes to a double net lease, the tenant is required to pay a certain share of property taxes and the insurance along with the base rent. The landlord is responsible for structural repairs and common area maintenance, while the utility charges are to be borne by the tenant.
Triple Net Lease:
In triple net lease, the tenant has to pay for the rent and bear the brunt of all the additional expenses on a proportionate basis. It is a landlord-friendly lease. A tenant must carefully review the document and negotiate on the amount to be raised annually. The best part of this lease is that it allows the tenant to have an idea of the operating costs that have been incurred.
Modified Gross Lease:
There is not a lot of difference between a gross lease and a modified gross lease. However, there is room for compromise between the two parties, although the rent is requested in a lump sum from the tenant. Janitorial services and electricity are some of the expenses that can be excluded from the list. All these traits make it a tenant-friendly lease.
It is important for an individual to explore different property options, before entering into a commercial deal. To understand the clauses of a leasing agreement in a better way, one must speak to the experienced owners or consult the accountants.