Commercial Leases

Commercial Leases ## Overview Commercial leases differ fundamentally from residential leases. They are negotiated between sophisticated parties (or their agents), involve significantly more complex financial and legal terms, and carry far fewer consumer protections than residential tenancies. A California broker working in commercial real estate must understand the full spectrum of lease types, structures, and commercial-specific clauses that define the economics of a commercial tenancy. --- ## Types of Commercial Leases ### Gross Lease In a gross lease, the tenant pays a single flat rent and the landlord pays all operating expenses: - Property taxes - Insurance - Maintenance and repairs - Utilities (in some gross leases) Gross leases are common in multi-tenant office buildings and are simple from the tenant's perspective — one predictable payment. The landlord assumes all risk of cost increases. From the landlord's perspective, this requires careful budgeting and reserves to absorb cost volatility. Modified Gross Lease: A variation where the base rent is gross, but certain specified expenses (e.g., utilities) are the tenant's responsibility. Common in creative office or co-working environments. ### Net Leases Net leases shift operating expenses to the tenant. There are three levels: Single Net (N) Lease: - Tenant pays base rent plus property taxes - Landlord pays insurance and maintenance - Relatively uncommon in practice Double Net (NN) Lease: - Tenant pays base rent plus property taxes and insurance - Landlord pays structural maintenance and repairs Triple Net (NNN) Lease: - Tenant pays base rent plus property taxes, insurance, and maintenance (including repairs) - Landlord has minimal obligations - The most common structure in freestanding retail, industrial, and single-tenant commercial properties - Major retail tenants (McDonald's, Walgreens, 7-Eleven) routinely use…