Key Terms and Concepts
Gross lease - A gross lease is where the tenant pays a total (gross) amount to the landlord who then pays the outgoings.
Net Lease - The tenant pays a base (net) rental and reimburses the landlord for the outgoings which are specified in the lease. The outgoings may be estimated on an annual basis, and the tenant pays a proportion each month which is reconciled and adjusted annually.
Alternatively, the lease may provide for the tenant to reimburse the landlord as each expense is incurred.
Outgoings - Unlike the residential landlord, the commercial investor usually finds their tenant covers most of the outgoings, such as insurance, rates, taxes and repairs, meaning more of the rent paid stays with the commercial landlord.
Lease Term - Commercial leases are generally for periods of years as commercial tenants prefer to establish their businesses, and only move when the property is no longer suitable for their needs. From a landlord's point of view, the longer the lease term the better, as he then has certainty of income without concerns of having a vacant property and the costs associated with locating tenants i.e. agent's letting fees can be spread over a greater period.
Options - An option is a right granted by the landlord to the tenant to extend the lease term for a further period provided the tenant has fulfilled their obligations under the lease.