Types of Leases

There are many types of leases available, each with their own advantages and responsibilities. The following is list of the more common types of leases.

Flat or Fixed Leases

• A single rent is set for a definite period of time.

Gross Leases

• The tenant pays a flat monthly amount.
• The landlord pays for all operating costs for the building.
• In some cases, the tenant pays for electricity, heat, and air conditioning.
• This type of lease often contains an escalation clause that allows the landlord to increase the rent annually to offset increased expenses.

Step Leases

• The rent is increased at a set amount on an annual basis during the life of the agreement.
• The increase is to cover the landlord's expected increases in expenses.
• The increase is based on estimated rather than actual costs.

Cost-of-Living Leases

• The rent is tied to rises in the cost of living.
• The rent goes up with general inflation.

Net Leases

• The tenant pays a base monthly rent plus some of the expenses.
• The increases are based on actual costs rather than on estimates.
• The rent increases at the time that the landlord incurs an increase in costs.
• In some cases, the tenant pays rent plus all of the real estate taxes.
• If leasing only a portion of the building, the tenant will pay a proportionate share of the taxes.

Net-Net Leases

• The tenant pays the base rental amount, real estate taxes, and insurance premiums.
• The insurance and real estate taxes are allocated among the tenants based on the proportion of space occupied.

Net-Net-Net Leases

• The tenant pays the base rental amount plus the landlord's operating costs.
• Included in this amount are real estate taxes, insurance, maintenance, and repairs.

Percentage Leases

• The tenant pays either a base amount or a percentage of gross income, or, depending on which is higher, pays a base amount or a percentage of the business's gross income.

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