Overhead expenses have a big impact on the breakeven and profit points of your business. No matter how much revenue your company pulls in, big overhead expenses can make it impossible for the business to become truly successful.
The cost of the lease is not the only factor here either. Who is responsible for premises liability claims? What about utility bills? Will you pay the property taxes or will the landlord? The type of lease agreement impacts this. Forbes highlights the main four.
Modified gross or full-service gross lease
Business owners split some of the operating expenses and structural repair costs with the landlord. This includes utilities, property insurance and property taxes. This is included in a base rent, which typically does not increase even if operating expenses do.
Triple net lease
The landlord pays only for structural repairs. The tenant becomes responsible for everything else. This includes insurance, taxes and utilities. This is a risky lease agreement to sign up for, especially if you are new to business ownership and unfamiliar with property management.
Double net or net-net lease
Tenant pays for insurance premiums, property taxes and utilities. The landlord handles the cost of maintenance repairs. This might work well for buildings that are older and liable to have problems over time, such as with the plumbing or HVAC.
Net lease or single net lease
Tenant pays for the property tax and the utilities. The insurance premium is the responsibility of the landlord. The landlord also pays for maintenance and repairs. This is a good idea for buildings and spaces that have the potential to create liability issues.
Some landlords and property managers might make it clear from the start that they only offer a certain type of lease arrangement. If that lease type does not suit you, you might be able to negotiate a better agreement with a professional’s help.