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What type of office lease did you sign?
Signing a lease agreement for office space does not have to be complicated, but it is not always as straight forward as signing a lease on an apartment, either. There are a few basic types of lease structures that can make major differences on your responsibilities as a tenant and at the end of the day can affect your bottom line.
Full Service Gross Lease
Full service gross, commonly simply called full service, is a lease that is as it states: full service. All extra costs are bundled into the rent. The rental rate in these type of office leases typically are inclusive of all common area maintenance charges, taxes, insurance, utilities, janitorial services in the suite and common areas, and in suite maintenance. A full-service lease can be beneficial for companies that want to know exactly what they will pay each month without much fluctuation. This lease type is frequently seen in class “A” office buildings.
Lease Type Tip: While Common area maintenance is included in the rent on a full-service lease, yearly pass-throughs or expense stops on any increases on the common area maintenance are typically still in effect.
Triple-Net or NNN Lease
A Triple-net lease (referred to as NNN) is a lease that is usually not inclusive of any services, taxes, insurance, maintenance, janitorial, or additional expenses. Each “N” or “net” typically represents an expense that is backed out of the rental rate. Most of the time when being referenced, these “nets” are Common area maintenance, taxes, and insurance. In these arrangements, the Landlord will be responsible for the physical exterior structure of the building and the roof, but the Tenant will be responsible for all other expenses, including their share of landlord’s building taxes, insurance, HVAC systems, landscaping, repairs, electricity, and janitorial. This lease type is frequently seen in stand-alone, single tenant buildings.
Lease Type Tip: While a Triple Net lease can seem like more of a headache, the tenant in these cases typically has more control over their expenses as they can know exactly what they are paying towards each expense, rather than bundling together in a full-service rate.
Modified Gross or Modified Net Lease
A modified gross or modified net lease is a blend between the two lease types above. They typically include one or two of the “nets” and then require tenant to pay the others. An example of a modified gross lease is an office building lease that has a base rent that covers common area maintenance, taxes, and insurance, but does not cover utilities or janitorial expenses. Generally, the landlord covers all expenses to operate the property, but the tenant covers all expenses in cost of operating their individual suite.
Lease Type Tip: A modified gross/net lease can mean different things, so always be sure to check as to what is included in the base rental rate in this lease type.
Whatever type of lease you sign, make sure it is in line with the priorities of your business and you are aware of any responsibilities as a tenant. A good Tenant Representative broker can help in this process.
James Lomax is a Commercial Real Estate Broker with Colliers International in Huntsville, Alabama. He can be reached at 256.503.6088.
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