Categories of Commercial Leases

Flat or Fixed Leases

• Rental rate fixed over an explicit period of time

Gross Leases

• Tenant pays flat monthly amount.
• Landlord pays operating costs of the building and property.
• Tenant may pay for electricity, heat, and air conditioning.
• May contain an escalation clause that would allow the landlord to incrementally increase rental rates periodically to offset expenses.

Step Leases

• Rent is increased at a predetermined rate periodically over the life of the lease.
• Purpose is to meet the landlord’s predictable increases in costs.
• Increase is based on projected costs instead of actual costs.

Cost of Living Leases

• Rental increases correspond to cost of living increases.
• Rent increases usually correlate to generic inflation.

Net Leases

• Tenant pays base monthly rent plus some or all expenses.
• Increases based on real costs instead of on projections.
• Rent increases when the landlord incurs additional expenses.
• Tenant may pay property taxes.
• Tenant pays utility and expenses in proportion to the space leased and the services used.

Net-Net Leases

• Tenant pays base amount, property taxes, and insurance premiums.
• Insurance premiums and property taxes are due according to the proportion of space leased.

Net-Net-Net Leases

• Tenant pays base amount plus landlord’s operating expenses.
• Usually includes property taxes, insurance premiums, maintenance, and repairs.

Percentage Leases

• Tenant pays base plus percentage of gross income, or the greater of the base amount or percentage of gross income.