4. A) In order to get prepared for participation in class discussion, write a summary of the text.

b) Write down six questions about the text.

c) Prepare a short talk about types of commercial lease.

What types of commercial lease is being offered?

The type of lease being offered is probably the most important thing to consider first because it determines how you will be charged rent. The terms of commercial real estate leases are defined by the type of commercial lease.

Some commercial leases are straight-forward, but most are not. If you do not know what a Ttriple Net Lease is, or what “Load Factor” means, or how your rent will be calculated (it is rare that you will be charged only for the actual square footage you will occupy), you cannot negotiate better terms. Is the lease “full service” or “percentage based?” The key to negotiating terms of a lease may be contingent on first negotiating the type of lease.

Ask to see a copy of a sample lease. A landlord who refuses to let you have time to look over lease terms before signing is not one to be trusted. Commercial leases can be just a few pages, but are more typically 15-20 or even more pages in length.

If you want a lawyer to look over the lease and the landlord refuse – do not sign the lease!

Types of Commercial Leases

There are many types of commercial leases, and some overlap. Since certain types of leases may include services (like, janitorial, utilities, etc.) and others do not, it is important that you specifically ask what kind of lease it is, as well as if it includes services, load fees, percentage fees, or other fees association with "net" leases.

Types of leases typically offered in commercial leasing include:

Double Net lease is a type of net lease in which the lessee (tenant) pays all or part of taxes and insurance associated with use of the property. These fees are paid in addition to monthly rent for use of the actual space.

The term "Fully Serviced Lease" refers to a lease in which the monthly rent includes the cost of certain types of services, which may include janitorial services, trash collection, utilities, water and sewer charges, property taxes, etc.

Instead of the tenant opening their own service or utility accounts and directly paying for these costs, the landlord pays for the expenses, but includes an amount in the monthly rent to help off-set these costs.

A Gross Lease is a type of commercial lease that generally favors the tenant (lessee) because the landlord (lessor) pays all "usual costs" that are associated with owning and maintaining the rented space. In a gross lease the landlord may cover costs including utilities, water and sewer, repairs, insurance, and/or taxes.

A Net Lease is a type of commercial real estate lease in which the lessee (tenant) pays for their space, as well as for part or all of certain “Usual Costs” (expenses associated with operating, maintenance and use of the property) that the landlord pays.

Expenses incorporated into net leases may include taxes, utilities, janitorial services, property insurance, property management fees, sewer, water, and trash collection. Net leases almost always favor the lessor (landlord) and should be negotiated to include caps, or, the maximum amount a landlord can increase fees each year.

Usual Costs that are added into net leases are generally broken down into three categories of expenses: maintenance, insurance, and taxes. A Double Net Lease requires the lessee to pay all taxes and insurance; and a Triple Net Lease requires the lessee to pay all three types of “Usual Costs.”

A Percentage Lease typically requires a tenant to pay "Base Rent" and then on top of that amount, the tenant also pays a percentage based on monthly sales volumes. Percentage leases are commonly executed in retail mall outlets and other commercial retail leases.

Percentage leases should not take a percentage of all sales made, but should include a percentage paid to the landlord (lessor) only when a tenant has made a certain amount in any given month. For example, a percentage lease might require a tenant to pay 5% of all sales that exceed more than $25,000 in any given month.

Rentable Square Feet, according to BOMA standards, is a term that combines "usable square feet" plus a portion of the common area. The difference between usable square feet and rentable square feet is generally between 10-15%, with rentable square feet reflecting a higher amount (cost) than just usable square feet.

Sublease in commercial real estate is a lease (rental agreement) between a tenant who already holds a lease to a commercial space or property and someone (the sublessee) who wants to use part or all of the tenant's space. In a sublease, the tenant assigns certain rights that they already hold to the leased property, to the sublessee.

Sublessees pay rent directly to the rightful tenant (sublessor) to either share the space with the sublessor or take over the entire space from the sublessor.

A sublessor cannot legally assign rights in a sublessee that the sublessor does not also have rights to in their own lease. Additionally, a sublessor cannot sublease unless they are permitted to do so in their own lease.

Triple Net Lease is also known as Net Net Net Lease or NNN Lease. This is a type of net lease in which the tenant pays all or part of the taxes, insurance, and maintenance associated with use of the property. These fees are paid in addition to the tenant's regular monthly rent.

Triple Net leases almost always favor the landlord and should be carefully negotiated to limit how much the landlord can increase NNN fees each year.