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Who pays the building expenses in a gross lease?

On Behalf of | May 20, 2023 | Commercial Leases

As a real estate developer, it is essential to understand the nitty-gritty details of commercial leases. One key factor to consider when negotiating such arrangements is who pays the building expenses. These include costs like property taxes, insurance premiums, maintenance fees, and utilities – all of which can add up significantly over time if not managed carefully. 

When discussing a gross lease with a potential tenant, everyone must understand what is involved so there are no unpleasant surprises down the line.

What is a gross lease?

A gross lease is a type of commercial lease. The tenant pays a flat fee, and the landlord agrees to pay for all expenses that come with the space. This includes property taxes, insurance, maintenance, utilities, and other costs associated with running the building.

The tenant is only responsible for paying one fixed rent payment each month. It makes it easier to budget since they know exactly what their monthly expenses will be. It also lets them focus on their business instead of worrying about fluctuating bills or unexpected costs.

The landlord is responsible for covering the building’s operating expenses, including repairs, cleaning services, landscaping, snow removal and more. They may also need to pay for any necessary upgrades or renovations to keep up with changing regulations or trends in the industry.

Gross leases can benefit tenants and landlords, but the advantages may vary depending on the situation. The landlord should ensure they can cover all of the necessary costs associated with running the building while still making a profit from renting out the space. 

A well-drafted rental agreement can help protect the rights of both the tenant and the landlord. It can clarify issues such as rent, expenses, maintenance responsibilities, and other important terms. All provisions should be clearly outlined in the rental agreement to avoid potential disputes in the future.