Commercial Lease Types
There are many types of commercial lease agreement in the State of Florida. This is the result of there being no standard agreement that is typically in use by all commercial landlords and tenants. The terms and conditions are governed by Florida Statute Chapter 83, Part I. By contrast to residential real estate leases the non-standard nature of commercial leases makes them much more variable and complex. Nonetheless, there can be said to be four basic types of commercial lease. Below we explore these types of commercial lease and explain the details of each.
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Type #1: Percentage Lease
Strip malls, shopping centers and other retail commercial landlords generally utilize this type of lease. A percentage lease agreement allows the landlord to charge a fixed rent, as well as collect a percentage of the tenant’s gross sales during a specific period (usually a month).
Type #2: Gross Lease
Often called a “full-service lease,” this is a short term commercial lease agreement wherein the property’s landlord is responsible for paying the ongoing operating expenses for the property. For example, the landlord will usually completely cover the property’s insurance, maintenance, utilities and property taxes in a gross lease agreement. To prevent abuse, it is common for gross leases to have an “expense stop clause” that specifies an amount above which the tenant is required to pay for a given expense. An expense stop clause may specify for instance that after a certain dollar amount, the tenant assumes responsibility for a specific utility – but only for the overage amount.
Gross leases tend to be more costly since the landlord often builds-in a “load factor” to account for the full service nature of this type of agreement. The load factor compensates the landlord for the cost and hassle of handling the additional expenses.
Commercial Lease Type #3: Modified Gross Lease
This type of gross lease usually requires the tenant to cover a portion (or all) of the expenses after a term (usually a year into the agreement). Modified gross leases ensure that both parties, landlord and tenant, share financial responsibilities for utilities, insurance, maintenance and/or property taxes.
Commercial Lease #4: Net Leases
“Net lease” is an umbrella term for five different types of commercial lease agreement in which the tenant takes on responsibility for paying a part of a property’s operating expenses, as well as the required rent. There are five sub-categories of net lease, including:
Single Net Lease: In a single net lease the tenant is responsible for covering one of either the property’s insurance, property taxes or maintenance costs in addition to the property’s rent.
Double Net Lease: Double net leases require the tenant to pay rent plus two of the three main operating costs, which are insurance, property taxes and/or maintenance costs.
Triple Net Lease: A triple net lease stipulates that all operating costs (insurance, property tax and maintenance) be paid by the tenant along with the rent for the property. This is sometimes called a “NNN lease”.
Absolute NNN Lease
While, triple net leases require tenants to pay for some or all building repair expenses, in some cases the landlord will assist with those expenses. This is not the case in an absolute NNN lease. This type of lease absolves the landlord of all responsibility for the building in all scenarios. In an absolute NNN or absolute triple net lease, the tenant is required to cover all building expenses, including but not limited to any maintenance or repairs to the building’s roof and main structure.
The Complexities of Commercial Leases
When entering into a commercial lease it is very important to do so with the advice of a competent, local attorney with experience in drafting and reviewing commercial lease agreements. If you are a tenant in a commercial lease relationship, you are not protected by the consumer laws that cover the landlord tenant relationship in a residential lease agreement. If you are the landlord, there are no standard forms that govern the agreement as is the case with residential agreements in the State of Florida. These factors and the fact that much more money and time (in terms of the length of the agreement) is usually at stake, make commercial agreements far more complex and difficult to negotiate.
Whether you are the landlord or the tenant, you will be best served by having a legal counsel by your side helping you to make the best decision for your business.
South Florida Law – Your Legal Real Estate Partner
At South Florida Law, we are committed to helping our clients close real estate transactions of all types within the state of Florida. We help companies and their landlords come to agreements that work best for their business interests. In cases where it is necessary to navigate through obstacles in order to close on a transaction, we have the big firm resources to dedicate the time and effort where it is needed. At the same time, we provide personalized service and attention to detail in your case at a price point that can only be achieved with a boutique firm of our size. Are you planning to enter into either side of a commercial lease agreement in Miami, the Keys, Broward or Palm Beach County? You need an experienced Florida real estate attorney you can rely on. Call South Florida Law today on (954) 900-8885 or reach out to us via our contact form.