A commercial real estate lease agreement is a contract to rent or lease commercial real estate. A commercial real estate lease agreement requires negotiation of the length of tenancy and any renewal option. rental, rent increases and deposits, property maintenance, insurance and taxes, utilities and cleaning as well as leasehold improvement.
The three most common ways commercial property leases are structured are:
- Net lease – A commercial real estate lease in which the lessee pays the base rent net of all other costs of occupancy, including utilities, cleaning costs as well property maintenance, insurance and taxes (the three “nets”), it being the most common structure for single tenant offices and industrial buildings;
- Modified net lease – A commercial real estate lease in which the tenant pays the base rent, utilities and cleaning costs while the landlord pays the maintenance, insurance and property tax on the leased real estate; and
- Gross lease – A commercial lease in which the tenant pays a gross amount that incorporates all of the tenant’s cost of occupancy, including utilities and cleaning as well as property maintenance, insurance and property taxes, it commonly being used for commercial office space for lease in multi-tenant mid-to high-rise office buildings.
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Under a triple-net lease, the landlord has very limited responsibilities for the ongoing property expenses while with an NNN lease lessees bear the greatest risk of increased costs. By the same token, a full-service CRE lease exposes the lessee to the least risk of increased costs.