Different Types of Commercial Lease Agreements

Two words are often associated with commercial lease agreements: “net” and “gross.” Both words pertain to the rent calculation method in the agreement. A “gross lease” means that a tenant pays one lump sum for rent, and the landlord pays additional expenses, such as taxes, insurance and maintenance.

A “net lease,” on the other hand, usually has a lower base rent because the tenant is responsible for most or all other expenses associated with running the business. There is also a third type of lease, which is called a “modified gross lease.” This is a combination of the two.

In contrast, Prologis Clear Lease® consists of base rent, plus a fixed charge inclusive of all operating expenses, management fees, capital repair and replacement expenses—except real estate taxes and, in Europe, utilities. Because of the simplicity of Clear Lease®, negotiations move quickly and customers easily understand how the lease terms will impact business operations.

Types of Commercial Leases

Commercial lease agreements are complex and sometimes confusing for tenants. This is especially true with the net lease option because there are multiple types of commercial net leases:

Single-net lease (N lease)

In a single-net lease, the tenant pays a base rent, a share of the building's property tax, as well as utilities and janitorial services. The landlord is responsible for all other building expenses.

Double-net lease (NN lease)

In a double-net lease, the tenant pays a base rent, a share of the property taxes, the property insurance premiums, and utilities and janitorial services. The landlord is responsible for common area maintenance and structural repairs.

Triple-net lease (NNN lease)

A triple-net lease is most common with commercial warehouses. In this lease, the tenant pays a base rent, all or part of the property taxes and insurance (in addition to business taxes and insurance), property management fees, utilities and janitorial services, and common area maintenance expenses (for things such as sewer, water, trash collection, landscaping, parking lots, fire sprinklers, and any commonly shared areas or services). If there’s a lobby attendant, the tenant also pays his or her wages as part of the NNN fees.

Absolute triple-net lease

An absolute triple-net lease is more rigid and binding than a standard triple-net lease, but it’s also not as common. In this lease, the tenant is responsible for the building expenses no matter what happens, even in the event of a catastrophe. For example, if the building were destroyed by a tornado, the tenant would be responsible for the construction costs to rebuild it.

Cajamar Building 1

Compare Commercial Lease Agreements

Every type of commercial lease comes with advantages and disadvantages. Negotiating a lease always involves some give and take, so the goal should be to find a balance where both the landlord and tenant are satisfied with the agreement.

Gross leases tend to benefit the tenant, whereas net leases are more landlord friendly. In a gross lease, the tenant has more control over how much is spent on such expenses as janitorial services and utilities. Modified gross (or net) leases allow for either or both parties to make compromises and concessions, so there tends to be more negotiating involved with these leases.

Find Your Ideal Commercial Lease Agreement

When shopping for a commercial lease, it is important to compare the different lease options while considering all expenses, not just the base rent. Most importantly, read the lease carefully to ensure a complete understanding of your responsibilities before signing.

Remember that all commercial leases are negotiable to some degree. If a lease doesn’t work for your business, make a counter offer. 

Learn More

Prologis leases quality properties in the markets that matter most, providing the essential services that support operational continuity for our customers. If you are in need of a warehouse lease, visit our Real Estate Operations to learn more.