Industrial property leasing involves a complex process that caters to different lease types and comes with its own set of terms and agreements. By understanding what these conditions are, you can choose a leasing property that’s the best fit for your business’s wants and needs. If you’ve always been curious about this, this article will discuss the different lease types that are commonly used in industrial property leasing.
Net lease.
Industrial properties for lease under this type typically make the tenants pay for the base rent and a small percentage of all operating expenses like security systems, insurance, and maintenance costs. There are three different sub-leases under this category, namely single net lease, double net lease (NN lease), and triple net lease (NNN lease). For the first one, the tenant pays the base rent and property taxes, while the NN lease requires the tenant to pay the base rent along with the insurance and property taxes. Finally, the NNN lease requires the tenant to pay property taxes, insurance, and maintenance costs on top of the base rent.
Gross lease.
Under this lease, the landlord pays for the operating and maintenance expenses as well as insurance, taxes, and utilities. Gross lease only requires the tenants to pay fixed monthly rental fees so they don’t have to worry about fluctuating operating expenses. Be that as it may, the tenants can only control the operating costs to a certain extent and the potential increase in expenses.
Modified gross lease.
In this type of lease, both the landlord and tenant share the operating expenses under certain terms depending on their agreement. With this, there’s a balance between the gross lease and control of the net lease, but do be mindful of the division of responsibilities because it will most likely come with potential cost implications.
Percentage lease.
Lastly, we have a percentage lease wherein the tenant pays for the percentage of the gross sales along with the base rent. This is the least-used lease; it’s often used by industrial properties that have showrooms and retail components. On the other hand, this works better for landlords since the rental income is linked to the tenant’s business performance, so if your business is booming, the landlord’s rental income also increases.
Industrial properties for lease also come with their own amenities like high-speed internet, security systems, and parking. There’s no need to hire knock-down rebuild experts since the landlord usually clears out the previous set-up of the old tenants if ever there was a previous user.
How do I choose the right lease type?
There are a few factors you need to consider when choosing the right lease type for your business. To make better-informed decisions, be mindful of the following:
Control. Be mindful of the level of control you can assert over property management and operating expenses.
Market condition. Given how the market is fluctuating, assess the market condition and create potential rate increase projections so you can plan ahead when it comes to your finances.
Long-term strategy. Do you plan on staying for the long term? Assess if the lease also aligns with your business growth projection.
Budget. Finally, create a realistic budget and assess risk tolerance so you can consider the level of expense and responsibilities you can tolerate.