In our most recent blog post, we explored Common Area Maintenance fees, otherwise known as CAM charges. It is a term that appears rather frequently in searches for information on commercial leases and refers to expenses beyond monthly rent such as taxes, insurance and maintenance. In this post, we will use the term as a jumping off point in order to shed light on more commercial leasing jargon that will likely turn up in your research.
It is best to start with the different types of leases. Bear in mind that this will be an overview and in no way is a substitute for careful reading of commercial leases. For that, enlisting the services of a real estate attorney is a good idea. For now, we will discuss two types of leases that represent the basic range of options facing potential tenants: one is the full service gross lease; the other is the NNN, or triple net lease. Essentially, the difference is what is included. A full service gross lease has one all-inclusive rate that covers the aforementioned CAM charges, in addition to rent and utilities. A triple net lease states the base rate separately and cites an NNN fee. The NNN fee is basically those pesky CAM charges. It represents the actual cost of running the building, in addition to taxes, insurance and maintenance. Utility charges are based on actual usage.
Again, this is just skimming the surface. These leases are really bookends to a virtual glossary of terms. One important variable you will want to look out for is the landlord’s responsibilities. Take a look at some more types of leases that may appear in your search:
- Absolute NNN Lease – A regular triple net release, as described above, and still requires the landlord to perform structural repairs. With this lease, however, It will seem as if you own the building. Maintenance includes the roof and structure.
- Percentage Lease – This one is used specifically for retail leases. The landlord typically sets a minimum monthly rent, but the overall rate is actually based on a percentage of your monthly or annual sales figures.
- Full Service Lease – Office properties rented to small businesses of 15 or less employees are likely to use these simple, straightforward agreements. Landlords may factor in most operating expenses, but will reserve the right to send you a bill if you exceed estimated amounts. Look for language that refers to future increases made on a pro rata basis. This will apply to costs such as air conditioning which, depending on the time of year, can vary greatly.
- Modified Gross – Tenants who own and operate industrial or warehouse properties will probably end up signing a full service lease, but with specific additions tacked on. For example, expense categories such as the electric bill may get factored in separately.
Leases are still legal documents. They can be modified and take many forms. Please read them carefully. Once you have determined your total cost of occupancy, you can comparison shop other properties. If you have not already, make an appointment with this office for a free consultation. The Law Office of H. Benjamin Sharlin LLC’s experience will serve you well as you embark on this adventure.
Please be advised that this blog is for informational purposes only, is not legal advice and does not create an attorney-client relationship.
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