There are so many types of leases. It can really get dizzying just trying to understand them all. People throw around these terms as if everyone knows exactly what they mean. Examples of these are gross lease vs. net lease vs. triple net lease, which all sound very technical and full of jargon. For someone casually hearing them, it becomes a mystery. So why don’t we clear things up?
As dedicated property managers in Baltimore and surrounding areas, we deal with a lot of leases. And we understand how they can be confusing. So let’s peel back the proverbial hood and get to the inner workings of what these different leases are.
Table of Contents
- What is a Gross Lease?
- What is a Net Lease?
- What is a Triple Net Lease?
- Differences: Gross Lease vs. Net Lease vs. Triple Net
- How BMG Can Help Navigate Those Waters
What is a Gross Lease?
So what is a gross lease? In a lot of situations it is considered the most common type. It is a lease in which the tenant agrees to pay the property owner a flat rental fee. Which in many ways simplifies things a lot.
The fee includes all of the costs associated with property ownership – taxes, insurance, utilities – so in that way, it is intended to be “all-inclusive”… it simplifies things for tenants in many ways. Gross leases can be modified to meet the needs of the various parties involved and are commonly used in certain commercial property rental markets. It is commonly seen with rentals in commercial property, such as office buildings and retail spaces that have numerous lessees.
What is a Net Lease?
What is a Net Lease?What about a net lease? Good question. A net lease can be seen as the opposite of a gross lease in certain ways. So thinking of all leases as broadly gross lease vs. net lease (at least when it comes to rentals) makes a good amount of sense. Net lease is the type in which the lessee pays a portion or all of the taxes, maintenance, insurance, and other costs in addition to rent. While this isn’t the case in all situations, in its purest form, the tenant is expected to pay all the costs related to a piece of property in a net lease. So when it comes to gross lease vs. net lease, the net lease is the one in which the tenant pays for costs outside of the basic rent.
Net leases are a popular option for commercial real estate investors who buy properties for the income and do not want the headaches of arranging maintenance, paying taxes, etc. Property owners use net leases to shift the burden of these fees to the tenant. Although the owner may charge less overall as a result. So there are bound to be some pros and cons for both owner and tenant.
What is a Triple Net Lease?
Now there is a thing called a TRIPLE net lease. Yet another category. A triple net lease – also called triple-net or NNN – is another type in which the tenant agrees to pay all expenses, including real estate taxes, insurance, and maintenance (along with the cost of rent and utilities). It is basically the same as a net lease, it just clarifies the fact that the tenant will specifically pay for three things: (1) rent and utilities, (2) property taxes, and (3) property insurance.
While there are benefits and drawbacks to all of these types, in the case of net and triple net leases the tenant controls the maintenance, upkeep, and appearance of the property and has direct control over the utility costs they pay. They can also select the insurance carrier and can protest the taxes if necessary. So while some tenants may not want to take on these fees, in some cases having a lower rent and being able to control the additional expenses could be a benefit.
Differences: Gross Lease vs. Net Lease vs. Triple Net
Differences: Gross Lease vs. Net Lease vs. Triple NetWith a gross lease, the rent covers not only the base rent but also the landlord’s expenses for property taxes, insurance, and maintenance. Essentially, the landlord is responsible for all the operating costs associated with the property, making it simpler for the tenant to budget their expenses. Gross leases are often preferred by tenants who want to avoid the unpredictability of fluctuating operating costs.
On the other hand, a net lease requires the tenant to pay a base rent plus some or all of the property’s operating expenses. There are different types of net leases, with the most common being the triple net lease (NNN). With the triple net lease, the tenant is responsible for paying the base rent and pretty much all else: taxes, insurance, and maintenance. This shifts the financial burden of operating expenses from the landlord to the tenant, but could also result in a lower base rent compared to a gross lease.
How BMG Can Help Navigate Those Waters
When it comes to owning and operating rental properties, it’s hard to do it all on your own. Understanding all the different types of leases is just a small part of the complexities to it. After all, you are responsible for not only lease agreements, but also maintenance, repairs, tenant screening, and the list goes on. Now, the work doubles or triples if you own more than one rental property.
Luckily, with the help of qualified professionals, you don’t have to do all the work yourself. Bay Property Management Group is a top-notch rental management company that offers comprehensive services. Contact BMG today if you need rental management services in Baltimore, Philadelphia, Northern Virginia, Washington DC., or neighboring areas.
