The Three Common Types of Commercial Leases

Real estate developer Joseph Nicolla heads Columbia Development Companies, a unique development firm located in Albany, New York. For each development project, Joseph Nicolla and his team provide comprehensive services to clients that range from feasibility studies to design, tenant meetings, and lease and sale agreements.

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There are three basic categories of commercial real estate leases and the following is a brief description of these types:

Net lease
With net leases, property owners are given the opportunity to pass operating and maintenance costs to the tenants, such as insurance, common area maintenance (CAM) costs, and property taxes. In exchange for covering these, tenants usually have a lower base rent than with a gross lease. There are several subtypes of net leases depending on the particular expenses tenants pay for.

Gross lease
Gross leases, or full-service leases, incorporate all property operating expenses in the tenant’s rent. Although the base amount is usually high, some people prefer this type of lease because they are absolved of responsibilities for the building’s daily operations after paying their rent. These tasks are instead handled by the landlords using funds from tenant payments.

Modified gross lease
The modified gross lease provides a middle ground between net and full-service leases in terms of landlord and tenant benefit. Operating expenses are split between the two parties, although the specifics of their individual responsibilities are determined through negotiation.