When you look for office space to rent, you'll encounter different types of leases that differ in terms of what you pay per month. You'll encounter terms like gross, modified gross, and triple net, which all describe what you're responsible for paying. It's not always possible for you to choose the type of lease you have; maybe you can negotiate the length of the lease, but many times you'll find the building owner is offering one type only. If you're trying to decide between different commercial properties for rent, often the type of lease can be the deciding factor.
How Much Control Do You Have Over Utility Use?
One factor you should already know about your business is how much control you have over the utilities that you use. In other words, are your employees in a good position to conserve a lot of energy and water, or does your business require a certain amount of resources that stay consistent from day to day? One of the factors that distinguish some of these leases is that your company would pay operational costs like utilities, so if you can conserve what you use, you can lower the amount you pay. Other leases include utilities with the rent, so you'd pay the same amount each month no matter how much you actually used. Those types of leases would be better if your utility usage was either consistent or had larger spikes that would normally raise your costs.
Gross, Modified Gross, and Triple Net Leases
Most of the lease types you'll encounter fall into three categories: gross, modified gross, and triple net. A gross lease is essentially an all-inclusive lease. You pay a set amount each month that the landlord uses for rent, property taxes, and operational costs. Maybe your company pays for your phone use, but things like water from the office kitchen sink and electricity are included. A modified gross lease is similar except you and the landlord both pay for operational costs; for example, the tenant and landlord may split repair costs 50/50. The rent will be a little cheaper to make up for the additional costs. A triple net lease is one where the tenant pays everything, including property taxes. So the landlord gets rent, but the tenant still makes property tax payments, utility payments, repairs, and so on. Rent on a triple net, or NNN, property is usually a lot cheaper compared to a gross-lease property. But the other costs can more than make up for that discount.
Take a look at the historical costs that other companies had to pay in those buildings. In addition to your utility use, for example, local rates may have a huge effect on your bills (that sounds obvious, but it's a real concern; those rates can vary so widely that what might cost you one thing in one city could cost three times that in another). Look at how property taxes have changed over the years. You don't want to be stuck paying taxes or bills that have a history of skyrocketing.
Commercial real estate is a big investment, even if you're just renting it. You want to be sure you have a lease that serves your company well.Share