What is a Gross Lease in Commercial Real Estate?

A gross lease is a type of commercial lease in which the tenant pays a flat rental fee. The rent paid is inclusive of all operating expenses such as taxes, insurance, common area maintenance charges, janitorial services, and utilities…. which are paid for by the landlord.

Not all commercial properties are managed the same way so be sure to ask all the right questions to be sure of what rent and operating expenses you are responsible for……….and get everything in writing! 

Benefits of a Full Service Gross Lease

  • Landlord is responsible for any increases in operating expenses
  • Easy for tenant to forecast expenses
  • Eliminates any worry about unexpected building costs

Disadvantages of a Gross Lease

  • Tenants pay the same rent regardless if the operating costs are reduced for whatever reason

Definition of Gross Lease

Above we have defined the basics of a gross lease in a commercial real estate transaction. Depending on the market, type of space, and landlord commercial properties are managed differently. When negotiating a commercial lease be sure to ask if janitorial and utilities are included. Also confirm if it’s a true gross lease or one that incorporates a “base year”.

Also be aware that as commercial lease operating expenses become more unpredictable (mainly taxes) landlords are changing to triple net (NNN) leases rather than gross leases. This makes it easier for them as they are able to pass along 100% of the costs associated with managing commercial properties. Whether you leasing office space, retail space, or warehouse space most will be NNN leases.

This content was originally published here.