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Commercial Real Estate Leases

Illustration about commercial real estate management
September 20, 2020 Washington DC

Leasing commercial real estate is very different than residential leasing. In an ultra-competitive market like DC, it’s important to understand the types of leases available and use the one that makes the most sense for your tenant.

Businesses have very different needs, so there isn’t a one-size-fits-all solution for every business tenant. Businesses with higher seasonal incomes cannot afford high rents when things are slow. Manufacturing businesses and auto shops will use substantial utilities and require more building maintenance than retail tenants.

Traditional businesses such as consultants and corporations will want fixed rent so they can budget accordingly.

We’ve listed the four types of leases below. Choose the one that works best for your situation.

Percentage Lease
Retail businesses with higher seasonal sales are excellent candidates for percentage leases. These tenants pay a monthly base rent and a percentage of the business’s revenue.

Full Service or Gross Lease
Full-Service leases include all operating expenses and utilities included in the monthly rate payment. Include an escalation clause that allows an increase in rent when expenses increase. If expenses are higher than estimated during any given month, these leases usually include language that allows the tenants to receive a bill for these expenses.

Triple Net Lease (NNN)
The opposite of a full-service lease is the triple net lease. Landlords charge a base rent and then bill for operating expenses. Expense categories include utilities, maintenance, property insurance, and management.

These leases are very common in free-standing properties and offices with multiple tenants.

Modified Gross
A modified gross lease is a full-service lease that allows the landlord to bill for additional expenses such as higher than average utility bills.

Managing commercial real estate is difficult. If you constantly struggle to handle your growing portfolio of commercial properties, it may be time to hire a property manager. They’ll save you time, money, and the headaches associated with dealing with commercial tenants and the complicated regulations of the DC real estate market.

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