Three common types of commercial leases are gross leases, net leases, and modified gross leases. Each type of lease has its own advantages and disadvantages.
The Gross Lease - In a gross lease, the landlord is responsible for paying property taxes, insurance, utilities, and maintenance. Because the landlord takes on these greater obligations, the base rent the tenant pays appears higher than for other types of leases. Nevertheless, this type of lease tends to favor the tenant because rent is fixed and the tenant will not have to be involved in the day-to-day operations of the building.
The Net Lease - In a net lease, the tenant's base rent is lower, but the tenant also pays certain operating expenses, such as property taxes, insurance, and maintenance. The extent of the tenant's obligations depends on whether the net lease is single (tenant pays base rent plus a pro-rata share of the building's property tax), double (tenant pays base rent plus a pro-rata share of property taxes and insurance), or triple (tenant pays all operating expenses in addition to base rent). In general, net leases tend to favor the landlord.
The Modified Gross Lease - The modified gross lease represents a flexible middle ground. The tenant and the landlord negotiate who will pay for operating expenses such as maintenance, utilities, and property taxes. The base rent will then be subjected to the terms agreed upon by the parties like in a gross lease.