Comparing the pros and cons of gross and net leases is essential when deciding which is best for a property owner. Though both leases are commonly used in rental agreements, one is riskier than the other.

The two standard types of commercial leases are gross and net leases. Under the former type of lease, the tenant pays their base rent, and the property owner handles operating costs. Gross leases are tenant-friendly, but our lawyers can modify them to protect property owners better. There are three types of net leases: single, double, and triple. Under single net leases, tenants pay base rent and property taxes. Tenants are responsible for sharing more operating expenses under double and triple net leases, making these types of leases more common for renting out office buildings or commercial spaces.

For a free review of your case, call the Heyman Law Firm’s real estate transactions and disputes lawyers at (410) 305-9287.

Are Gross Leases Risker Than Net Leases for Property Managers?

Property owners might give tenants several types of leases, though the two most common types are gross leases and net leases. Comparing these two types of leases and understanding the risks they both present is important so that you can safeguard yourself as a property owner.

Gross Leases

Gross leases are more common for tenants renting apartments or single-family homes. Under a gross lease, the tenant agrees to pay a fixed monthly price for rent, and the landlord agrees to cover operating and maintenance costs for the property. This type of lease is tenant-friendly but often increases costs for property owners and managers. With gross leases, landlords pay any and all expenses that come with maintaining the property itself, such as property insurance, real estate taxes, and utilities. Furthermore, property managers  are typically responsible for building repairs under a gross lease.

Net Leases

A net lease poses fewer risks for landlords and is more common in commercial rental agreements, such as if a retail company rents a space. Under a net lease, the lessee also pays a fixed rate for rent but covers some or all of the operating costs as well. There are several types of net leases, including single, double, and triple net leases. Depending on the type of net lease a property owner gives a lessee, the lessee will be responsible for more operating costs. This reduces risks for property owners, as after signing a net lease, the tenant is legally responsible for making agreed-upon payments and covering the appropriate expenses.

Can Property Owners Modify Gross Leases to Reduce Risks?

Gross leases are the most appealing to tenants, as they typically have the fewest costs and risks for them. Under gross leases, tenants only have to pay rent and do not have to worry about operating costs like utilities. Our lawyers can help you modify a gross lease to benefit you and your property management company, attracting tenants to your property while ensuring they help cover some of the expenses associated with maintaining the property.In a modified gross lease, tenants pay a fixed price for rent and a portion of the building’s operating expenses, often including utilities. Modified gross leases are more common in multi-family housing arrangements or large apartment complexes with common areas for tenants. This can lower risks associated with gross leases and ensure tenants pay something towards operating expenses while keeping leases tenant-friendly.

When writing commercial or residential leases, our real estate transactions and disputes lawyers can modify the terms to be favorable to you and your goals. For example, when renting out large office buildings to several tenants, property owners might modify gross leases so that tenants share utility expenses to alleviate some financial strain. Modified gross leases may assign additional operational expenses to tenants, lowering costs and risks for property owners and managers. Our lawyers may include escalating clauses in modified gross leases to cover potential rising costs associated with the property, such as maintenance or insurance premiums, to further protect property owners using gross leases. Even with modifications, gross leases can be more appealing to tenants than net leases, making them a viable option for property managers in specific situations.

Lowering Risks for Landlords with Single, Double, and Triple Net Leases

The type of net lease you employ while renting out commercial properties, single-family homes, or large apartment complexes will influence how you oversee and maintain the property.A single net lease is the standard type of net lease and requires the tenant to pay their base rent plus property taxes. Compared to gross leases, this already lowers landlords’ risks, as it eliminates the expenses of property taxes immediately.

The next step up is a double net lease, or a “net-net” lease, under which the tenant must pay their base rent, property taxes, and property insurance premiums. Once again, this eliminates another expense and reduces the risks associated with renting out your property to tenants.

The final type of net lease is a triple net lease, or a “net-net-net” lease. Under this type of lease, the tenant must pay their base rent, property taxes, insurance premiums, and any other operational expenses, such as utilities. This is more common in commercial leases, as the businesses that rent these properties might have expensive utility bills. For example, if a property owner rents their space to a restaurant, it would benefit them to do so under a double or triple net lease, as the restaurant would likely generate costly utility bills A triple net lease reduces considerable risks for property owners, as tenants are liable for most or all of the costs of maintaining the property. Because of the commitment involved in a triple net lease, they are typically longer than other leases, often lasting several years. A triple net lease is the least risky for property owners compared to other options.

Double and triple net leases are most common in rental agreements for office buildings or commercial spaces, and tenants looking for apartments or rental homes are less likely to agree to these terms as they are less favorable.

Call Our Attorneys for Help with Your Case Today

Call the Heyman Law Firm at (410) 305-9287 for a free case analysis from our real estate transactions and disputes lawyers.