Commercial Real Estate Leases: the 4 Types Explained

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Commercial real estate leases represent a sizable financial investment and long-term commitment for a tenant.


It goes far beyond monthly rent payments, too. In addition to rent, commercial tenants have several other costs to be aware of when signing a lease. These costs could include property taxes, property insurance premiums, certain maintenance costs such as an annual contract to service the central HVAC unit, build-out costs, and more.


Who covers what cost depends on the commercial real estate lease agreement type.


Commercial real estate leases come in several forms- Net Leases, Absolute Leases, and Gross Leases. The terms of the different types of commercial real estate leases are determined by who is responsible for paying which expenses, whether it is the tenant or the landlord. Additionally, the lease structures have an impact on the base rent, which may be adjusted accordingly.


Therefore, tenants must not only understand the basics of these commercial real estate leases. They should also know that everything is negotiable. Accordingly, they should always carefully review and negotiate the lease’s business terms. Then, once they reach business terms with the landlord, a commercial real estate attorney should review the draft lease, which will likely be 20-80 pages long.


Below, we will discuss each type of commercial real estate lease in detail and provide a clearer understanding of important factors to consider.


1. Net Leases


In a Net Lease, the tenant pays one or more additional expenses. Generally, these expenses consist of property taxes, property insurance premiums, and maintenance costs.


Furthermore, Net Lease rents are typically less expensive for tenants than traditional lease rents.