Researching and investigating a new commercial property for your business can be exciting. It’s hard not to start imaging your business blossoming in this new space. But wait, before you can move in, you need to agree to and sign a commercial lease.
For the seasoned lessee, leasing commercial property can look like a breeze. For the newcomer, however, the entire process can seem quite tricky, confusing, and overwhelming.
To start, let’s define the two main categories of leases: gross lease and net lease.
A type of commercial real estate lease requiring you – the tenant or lessee – to pay a fixed fee covering the base rent plus all of your non-business expenses. Keyword is fixed; therefore, you will know what you owe each month ahead of time.
Meanwhile, the owner – the landlord or lessor – is responsible for making sure the non-business expenses are paid for. These general expenses can include insurance, repair and maintenance, taxes, garbage collection, security, utilities, and so on. Overall, a gross lease can be flexible and customizable to suit both you and the lessor.
This type of commercial property lease requires you – the tenant or lessee – to not only pay the base rent but the associated general expenses. With a net lease, you may be paying additional fees for garbage collection, security, utilities, repair and maintenance and so on that are not included in the base rental amount. Essentially, a net lease is the exact opposite of a gross lease, which means you need to account for any costs that may fluctuate due to use (i.e. utilities).
Ok, but which is best?
At first glance, the difference between the two is pretty straightforward. Nevertheless, it’s important to know all the terms associated with your lease and to understand everything about both these options. Ultimately, you will want to make a decision that is the most suitable for you.
Things to help in your decision-making process:
- Seek professional advice – work with people who are dedicated to your success
- Create a pros and cons list
- Consider your business’ cash flow
- Take your time researching – consider building amenities, location, transportation, etc.
- Set limits – estimate your budget for rent and extra expenses