Types of Leases
Understanding how rental charges are
determined and allocated is very important if you wish to
safely and effectively negotiate terms within your budget.
The one thing most leases have in common is that, in most
cases, in addition to specifying the amount of "rent" to be
paid, they require that tenants also pay the landlord's
operating costs (real estate taxes, insurance premiums,
maintenance costs, etc.). While there are unlimited
variations on who pays what and what is or is not included
in "rent", there are four common approaches and they are
often referred to in the following manner:
- Gross Lease:
The tenant pays a set amount of base rent (sometimes
called fixed rent, annual rent or minimum rent), normally
with built-in future increases. The landlord pays the
operating costs. In addition, the tenant typically pays
for utilities, suite janitorial and maintenance.
- Pass-Through
Lease: This is the same as a Gross Lease except
that, starting with the second year, in addition to the
base rent, the tenant also pays a proportionate share of
any increases in the operating costs paid by the landlord
in the first year. In addition, the tenant typically pays
for utilities, suite janitorial and maintenance.
- Full Service
Lease: This is essentially a Gross Lease, but
one in which all utilities, suite janitorial and
maintenance are included in the base rent. There normally
are built in future base rent increases and sometimes,
also, operating cost pass-through increases.
- Net Lease:
The tenant pays base rent, normally with built-in future
increases. The base rent includes no other charges.
However, in addition, the tenant also pays a proportionate
share of all operating costs. In addition, the tenant
typically pays for all of its own utilities, suite
janitorial and maintenance.
As you might imagine, it is easy to get
confused, even tripped up by a fast-talking broker or
landlord. So understanding what is at stake and how the
landlord's program is set up is paramount if you wish to
avoid a rude surprise when it comes time to pay the "rent".
|
