Also known as a full-service lease, a Gross Lease typically includes all of the Operating Expenses for a property, such as the utilities, maintenance, and property taxes. The upside of a Gross Lease is you are typically only responsible for paying for Rent. Rent will also likely remain the same throughout the year (even if you have an unseasonably hot Summer that means extra cooling costs or a bitterly cold Winter that results in the heating system working over-time). On the downside,the Base Rent is usually higher with this type of lease. Keep in mind landlords may try to add language to the lease that allows for increases in rent if certain events occur, like an increase property taxes or insurance premiums.
If your landlord receives a lower tax assessment and property taxes and insurance rates drop, the savings are passed along to you and other tenants. Keep in mind with these types of leases, expenses are unpredictable. Modified Net Lease also referred to as a Modified Gross Lease: These types of leases usually require you to pay Rent and some portion of the property Common Area Operating Expenses, Real Property Taxes, and/or Insurance. With a Net Lease, Base Rent may belower, however Common Area Operating Expenses are often added to the Base Rent. The Operating Expenses are most often variable, making it more difficult for a Tenant to budget their rental expenses. There are two kinds of Net Leases you want to be aware of:
With these types of leases, you will be expected to pay for your share of all Common Area Operating Expenses (N), Real Property Taxes (N),and Insurance (N). Your share of the NNN expenses are usually calculated based on the square footage you are leasing and dividing it by the total square footage of a building or the property's total rentable square footage. Net leases tend to favor landlords more than tenants; however, with this type of lease, you may be able to review your landlord's operating costs.
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