Many people have rented residential spaces, such as apartments in college or homes for their families. They understand how these lease agreements tend to work.
When they move to renting a commercial space, perhaps to start a new business, they may assume that the commercial lease is going to be the same. But this is not always the case.
Defining financial obligations
To determine what financial obligations each party has, a commercial lease will use a “net.“
A standard lease just requires someone to pay rent every month. A single net lease, on the other hand, tells a tenant that they are also responsible for the property taxes on that location. With a double net lease, property insurance obligations also fall to the tenant. That’s why this is very common in commercial real estate, but less common in residential real estate. Commercial business owners use their spaces in many different ways and often have long-term leases, so they have more responsibilities.
The final level is a triple net lease. This just takes all of the obligations noted above and adds building insurance, real estate taxes and any upkeep and maintenance that is necessary. Since commercial tenants will often change or alter the space – such as a shop owner putting in shelving units – they are expected to take on a higher level of costs, even though they don’t own the property.
Signing a commercial lease
If you’re thinking of signing a commercial lease, understanding what type of lease you’re looking at is just the first step. Be sure you also understand all of your other legal obligations at this important time.