Make sure you ‘net’ right commercial lease

Guest Column: Christopher R. Blazejewski
Commercial landlords and tenants, similar to other parties transacting in a particular business area, have a language all their own when negotiating leases. More

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Focus: REAL ESTATE

Make sure you ‘net’ right commercial lease

Guest Column: Christopher R. Blazejewski
Posted 8/13/12

Commercial landlords and tenants, similar to other parties transacting in a particular business area, have a language all their own when negotiating leases.

Commercial-lease negotiations frequently involve terms like “net” “net-net,” “double-net,” “triple-net,” and “absolute net” as shorthand for discussing who pays for what under the terms of the agreement. Problems arise, however, when a landlord and tenant use the same term and mean two different things.

Even if a commercial landlord and tenant agree in broad terms to a net lease, for example, it is important that the parties’ carefully draft the lease agreement to reflect their actual intent, since these terms can mean different things to different people. Thinking ahead and drafting the lease with precision can avoid future litigation over these issues.

A commercial lease allows a landlord and tenant to allocate who pays for what in several ways. For example, under a gross lease the tenant pays a flat amount as rent, while the landlord pays for all property charges incurred as a result of ownership, including real estate taxes, insurance, and other amounts associated with upkeep and maintenance.

A gross lease is relatively straightforward (as such, it is a popular form of residential apartment lease), and may be sufficient for some commercial deals. The term “gross lease,” however, leaves open the question of who pays for utilities: Some gross leases require the tenant to pay utilities, while others place that burden on the landlord.

In contrast to a gross lease, a “net lease” requires a commercial tenant to pay for some or all additional property charges incurred as a result of ownership. The term “net lease” can refer generally to all types of net leases, regardless of what kinds of additional property charges are paid for by the tenant, or can refer to a specific type of net lease known as a “single-net” lease.

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