What’s so gross about a gross lease??
Entering into the commercial leasing world for the first time can be a bit confusing…gross, NNN, CAM..What does it all mean?
Most commercial leasing is generally done in one of two ways, either “gross” where the rent is basically the rent or in a “triple net,” where the tenant pays a base rent and additionally pays a prorated share of the other building expenses. These other expenses typically include the real estate taxes, property Insurance, and common area maintenance fees ( CAMS) that usually include snow removal, landscaping and sometime janitorial services.
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Is one better than the other? Well either way the tenant pays the freight. Most tenants prefer a gross lease, under which the tenant writes one check per month, and that gross rent includes both the base rent and the proportions share of triple net expenses. The typical gross lease may include a yearly increase in rent (escalator clause) to keep the landlord even with increases in the costs of taxes, insurance, and property maintenance.
Conversely, most landlords prefer a net lease with the tenant paying “additional rent” for the actual triple net expenses from year to year. Under a “pure” net lease there is no guess work for the landlord. Whatever the triple net costs are they simply are passed to the tenants dollar for dollar. Landlords may balk at agreeing to a full gross lease because there is no mechanism that protects the landlord against a large increase in taxes and other so-called net expenses.
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Clearly, in commercial leasing, the industry standard is net rather than gross leasing. Yet, in recent years we have had some landlords who believe that a gross lease saves them the time and expense of calculating the “additional rent” figures from year to year, and gross leasing can be more attractive to prospective tenants and existing ones in these more depressed economic time. Indeed, if one owns and operates a lot of commercial property, there is a lot of office time dedicated to tracking the triple nets!
If you have further questions about commercial leasing or any other real estate concerns or topics you would like addressed please feel free to contact me at Vicki@ccrsales.com or like us on Facebook!
