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Know your options: 3 types of commercial leases

You want to open your business locally, but you're not sure about the commercial leases you're being offered. Are they really what's best? Are you getting a good deal or getting ripped off?

There are several kinds of commercial real estate leases. These leases include full-service leases, modified gross leases and net leases. Understanding the benefits of each kind of lease can help you choose the right lease for your business or organization.

Full-service leases

Full-service leases are what they sound like; they include everything in the rent. For example, if you rent and don't have a full-service lease, you may end up paying for electricity, water, taxes and other expenses. In a full-service lease, everything is included, so you only have to worry about one payment.

Modified gross leases

Modified gross leases are a middle ground between full-service leases and net leases. The gross lease typically gets paid in one lump payment, but it does include some costs. For instance, you may have a base rent of $300 and property taxes of $200 monthly. The landlord would then ask for a payment of $500. You would also be expected to pay for your utilities and janitorial services separately.

Net leases

Net leases are leases in which the base rent is lower but the tenant needs to pay for the usual costs of operations and maintenance. For example, if you would pay $5,000 for a year under a full-service lease, you might pay $2,500 on a net lease but also have to pay for utilities, taxes and maintenance costs throughout the year.

Leases of different types have benefits and downsides. It's a good idea to look into the lease being offered to you and to negotiate for the best terms possible. You may be able to find a lease that has terms that benefit your business.

Source: 42 Floors, "3 Different Types of Commercial Real Estate Leases," accessed Oct. 19, 2017

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