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What are some common types of commercial leases?

On Behalf of | Jan 25, 2021 | Commercial Leases

As someone who may not be familiar with commercial leases, you may encounter terms that confuse you.

It is important to not only read over your commercial lease but to also lookup unfamiliar terms to understand the agreement you are about to enter.

Gross Leases

According to FindLaw, gross leases are a very specific type of commercial lease that lays out requirements for both you and your landlord. Like with flat or fixed leases, you must pay a predetermined amount for rent. In a gross lease, however, there may be a clause that allows the landlord to increase that rent once a year.

Typically, the landlord is responsible for the operating costs of the unit. This may or may not include utilities such as heat, cooling and electricity.

Net leases

Net leases allow landlords to increase the rent when they occur an increase in their costs as opposed to waiting once a year. Per this type of commercial lease, you will usually pay a portion of the expenses in addition to the rent. Under some net leases, you may also be responsible for paying up to the full amount of real estate taxes.

Step leases

Step leases combine some elements of both gross and net leases. Rent increases occur once a year and are meant to offset the landlord’s increase in expenses. Whereas rental increases under a net lease are based on realized increases, step leases include raises based on estimated increases instead.

Cost-of-living leases

As the name suggests, cost-of-living leases increase rental costs based on the cost of living. As the cost of living increases, your rent will increase as well.

Being sure to understand your lease requirements before you sign can help you avoid problems in the future.