There are a number of types of commercial leases, as our readers likely know. One that isn’t talked about a lot is a full-service lease. These are most often used when leasing space in large office buildings.
Basically, a full-service lease is similar to a gross lease. The costs of just about everything involved in maintaining the building are factored into each tenant’s monthly rent. This includes property taxes, insurance, utilities and common area maintenance (CAM).
Advantages and disadvantages for tenants
Many tenants prefer this kind of lease because it’s simpler. They have a rent payment every month that covers just about all of the expenses associated with the property they’re using. This can be a big advantage when budgeting. They can also avoid some monthly rate fluctuations – particularly if gas and electric costs are included.
However, if you’re considering a commercial space with a full-service lease, be prepared to pay more than you would for other types of leases. Another disadvantage for tenants is that these leases don’t typically have a lot of transparency. You’re trusting that the landlord isn’t charging you more than they’re paying for various services – or charging you for services you barely use.
Why property owners can benefit from these leases
These leases can be advantageous to property owners. For example, aside from the consistency of rental payments, they may be able to invest in energy-saving improvements to the building if the lease covers these utilities. The tenants are paying the same amount as they were at the beginning of their lease while the building owner is saving money. These savings can subsidize the improvements.
Whichever side of the full-service commercial lease agreement you’re on, it’s crucial to understand the advantages and disadvantages, what is required of you and how it will affect your bottom line.