Entering a lease agreement without understanding the basics at the very least can be detrimental to you in the long run. Before you get into the negotiation phase of a residential or commercial lease, you should acquaint yourself with new vocabulary. This will enable you to understand the contract. More often than not, the jargon behind a lease agreement for any type of residential or
commercial property can be complex. A proper understanding of these phrases can provide invaluable insights into the nature of the lease and help you avoid unfavorable lease terms.
Beyond your understanding of the jargon behind a lease agreement, you need to be able to identify different types of leases. A good example is a gross lease. Before considering the option of a gross lease there are pertinent questions you need to ask:
What is a gross lease in property management?
What do you need to know about a
gross lease before entering into one?
Why should you consider a gross lease?
A gross lease is a commercial lease that requires the tenant to make a single payment to their landlord. The rent paid encompasses the space and covers some of the expenses associated with the unit. A gross lease is a type of commercial lease that is commonly used in retail complexes with numerous tenants and office buildings.
People generally refer to a full-service gross lease as a gross lease. However, in a full-service gross lease, every expense is included and covered. There are other types of gross leases like the triple net lease that could leave you with almost the same type of liability, such a lease would require you to pay all the expenses of the property. Having said that, it's in your best interest to read the lease carefully.
A gross lease usually includes the actual rent plus expenses, however, the expenses included in a gross lease vary from contract to contract. In some contracts, taxes, insurance maintenance, and utilities may be included. With this in mind, it will be smart of you to review the expenses that are included before signing a gross lease. Failure to do so may cost you in the long run and the resulting effect of your negligence will be to face the same level of liability for property expenses as you would have under a triple net lease.
Property management companies have different preferences when it comes to making payments and facilitating accounting. One of the advantages of a gross lease is that it simplifies payments and makes accounting easy. Moreover, it is possible to pay for all of the costs associated with occupying a space with a single check. The ease of using single check transactions benefits large property management companies with sizeable
commercial lease portfolios.
New ParagraphGross commercial leases give property owners the flexibility to make rent increments at specific intervals for the purpose of covering increasing costs. In some cases, these incremental changes are tied to actual costs and are only prone to change when expenses go up. In addition, rent increments may occur regularly by a fixed amount or follow the Consumer Price Index which determines the lease amount paid by urban consumers for housing services and how that pricing corresponds to national or regional inflation.
This is not common practice, but some gross commercial leases enable landlords to change the rental rate so that certain costs like utilities can be covered. With a gross lease, your rate could be increased during summer when you use more air conditioning. Certain clauses in a gross lease give landlords the flexibility to make adjustments in rent rates as they see fit. As a tenant, this might not sit well with you, so it is wise to negotiate the best terms before you sign the lease.
There are numerous downsides associated with gross commercial leases. One of them has to do with tenants having little to no control over occupancy costs once they sign. Let’s assume you’re paying a flat-out rate for utilities and you decide to install a smart thermostat or LED light fixtures to conserve energy. Unfortunately, this will not reduce your rent unless you negotiate with your landlord.
Everyone wants a deal that relinquishes them of too much liability and responsibility. This explains why most property owners draw up lease agreements that transfer the expenses of managing a building to tenants. Triple net lease structures are a perfect example and with their increasing popularity, the gross lease might seem hard to find. Nonetheless, some landlords have come to the realization that gross leases are desirable to their tenants. A gross lease framework might seem costly upfront, however, there are cogent reasons to consider it if you have the opportunity. Here are a few reasons why you might want to opt-in on a gross lease.
A good reason for leasing space on a full-service lease is the assurance that comes with knowledge of what you’ll spend. The rent rate is fixed regardless of what happens. If there’s an increase in the costs of utilities, a spike in building repairs, or a reassessment of property taxes, you have no reason to fret because these issues fall under the responsibilities of the landlord. When you combine a gross lease with pre-established increments, it enables you to get long-term visibility into your occupancy costs.
Marketing a gross lease seems to be more difficult because it looks more expensive than a triple net lease. Won’t you prefer to pay $21/sq.ft in rent than pay $33? This looks good till you realize that a $33 lease is a gross lease and the $21 is a triple net lease in a building with $15 in CAMs and other costly expenses.
Sometimes, the reason why tenants go for a gross lease structure is that they have no choice. Some prospective tenants might not be bothered about the lease structure as long as the space suits their needs and works for their business. Ultimately, if the landlord is insistent on leasing the place on the basis of a gross lease structure, acquiescing to that request could enable you to negotiate for a better deal on other business points. This might also be your only option to get a perfect space.
