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Property Lease Types

Gross Lease: Rent is all-inclusive. Tenant pays a flat amount with the landlord paying all expenses associated with the property (taxes, insurance, utilities, maintenance etc.).

Net Lease: Landlord usually charges a lower `base rent` and tenant pays for the operating expenses. In a Triple Net Lease (or NNN) the tenant will pay the rent and some or all of the property expenses that normally would be paid by the property owner (i.e. operating expenses as well as utilities, taxes, property insurance, maintenance etc.). Landlord therefore receives the rent “net” after the expenses which are passed through to tenants are paid.

Hybrid Lease: Leases which fall somewhere in between a Gross Lease & a Net Lease are considered Hybrid Leases. Landlord and Tenant share the operating expenses according to their contract/agreement. Usually, this is agreed based on charges that can be allocated to a tenant separately and the charges which cannot be allocated separately may be paid by the landlord. The parties may further agree to an “expense stop” approach where tenant may agree to be charged for the extra cost of operating expenses when these are over and above a specified amount.