Every business owner remembers the pride they felt when the ribbon was cut on their new office or new location. All their friends and family, along with the local mayor and the chamber of commerce, came by to congratulate the owner on their accomplishment.
Getting to that point was not always easy and getting that space was often complicated, filled with terms that are very well known to realtors and institutional investors but are not common to most people.
After all, the closest thing most people have had with leasing property is the apartment they rented or the short-term rental agreement they signed when moving.
Most residential leases are straightforward. You agree to a rent payment and to maintain the property inside the home, and pay for renters insurance and utilities. The rest is up to the landlord.
That is not the case with commercial real estate, where you can sign a “triple net” lease, an “absolute” lease, a “step-up” lease, a “gross” lease or a number of other types of leases.
It is important you work with an attorney at The Orlando Law Group to ensure you fully understand the ramifications of the lease you want to sign. Any type of lease has risk and reward and the attorneys at The Orlando Law Group can help you make the best decision for your business.
What are the different types of leases?
There are a multitude of types of leases, but it is important to understand the difference between the common types of commercial leases: single net, double net, triple net and absolute net leases.
In each of these types of leases, the difference is who pays what during the lease to operate and maintain the property. The most common of these leases is the triple net lease, where you will pay less on your lease payment, but more in the operations of your business.
In the triple net lease, your business will be responsible for utilities, taxes, janitorial, insurance, maintenance and much more. The payments will be bill separately and based on the percentage of space you lease in the building.
Sure, it sounds like a lot, but remember, the property owner took the risk in developing the property from leasing. As a user of the building, the thought is you will have responsibility in maintaining the property you are using.
If that sounds like too much to be responsible for, you can always look at a double net lease or a single net lease. These are not as common as they shift some of the responsibility to the property owner, but the owner may be amenable to those types of leases.
In a double net lease, you will pay for just about all the same items as a triple net lease, but the overall property maintenance will be the responsibility of the property owner. Things like landscaping and small facility repairs will not be part of your lease, but you will still need to cover taxes, utilities and other aspects.
In a single net lease, you are pretty much responsible for only your space. You pay rent and taxes and the landlord pays virtually everything else.
The reality of each of these types of leases is the more you pay for, the lower your lease payment. The fewer items you pay for, the higher your lease payment.
What are other varieties of leases?
Of course, as with any legal arrangement, there are dozens of different variations of the three types of leases.
Start out with the “absolute triple net lease.” This variation includes everything that a triple net lease includes, plus a contribution to major repairs on the building. For instance, if your shopping center needs a new roof or your office building needs a new HVAC, your business will be responsible for helping pay for those repairs based on the percentage of square feet you lease.
What if the next hurricane destroys the building? In most leases, the property owner would be responsible. But in a “bond” lease, you are on the hook to help rebuild the property. And if the building is condemned, you still have to make lease payments.
You could also try to negotiate a “gross” lease. It is like the triple net lease as to what it covers, but in this arrangement, everything is included in the singular lease payment, as opposed to being billed separately for taxes, insurance, property maintenance and more.
There are also “percentage” leases, which provide the property owner with a cut of the business profits. These are particularly common with restaurants, which take a bit of time to build a customer base. There are step-up leases, which automatically increase the lease payments over time.
If you want a custom building, you can also look at a ground lease, where you are responsible for building your location and everything that needs to be part of the facility. Of course, you need to make sure it is very clear what happens to your investment when or if the ground lease ends.
What type of lease is best?
There really is no “best” type of lease. All the established types of leases have their pros and cons and are dependent on your business. The goal of the property owner is to keep their investment filled with tenants and produce revenue. They are usually willing to work to find a lease arrangement that works for everyone.
That is why it is critical to work with an attorney on your commercial lease. Your attorney will understand what your long-term goals are for your business and will be able to negotiate to get you the best possible lease for your specific business.
The attorneys at The Orlando Law Group represent clients in commercial real estate and more in Orlando, Waterford Lakes, Altamonte Springs, Winter Garden, Lake Nona, St. Cloud, Kissimmee, and throughout Central Florida.
If you have questions about anything discussed in this article or other legal matters, give our office a call at 407-512-4394 or fill out our online contact form to schedule a consultation to discuss your case. We have an office conveniently located at 12301 Lake Underhill Rd, Suite 213, Orlando, FL 32828, as well as offices in Seminole, Osceola and West Orange counties to assist you.
The articles on this blog are for informative purposes only and are no substitute for legal advice or an attorney-client relationship. If you are seeking legal advice, please contact our law firm directly.
Last Updated on September 24, 2023 by The Orlando Law Group