Table of Contents
As a commercial landlord, you will likely have a lease agreement with your commercial tenants for the premises they rent from you. A commercial lease agreement will provide the necessary details about the sole occupation of your property for business use. However, various commercial lease agreements are open to you, including a net lease agreement. Therefore, understanding the different types of lease agreements is crucial. This article will explain what commercial landlords need to know about net leases in the UK.
Leases
A commercial lease is where you (as a landlord) lease your property to a lessee (your commercial tenant) for their business premises. A lease grants your tenant sole occupation of the property space for specific business use over a set period. This period is the lease term. In turn, your commercial tenant will pay you rent.
Indeed, the lease agreement is a legally binding contract. Accordingly, it will contain positive and restrictive covenants that detail both of your responsibilities.
A net lease is one type of commercial lease. There are also other types of commercial leases, namely:
- full-service lease;
- modified gross lease;
- absolute lease; and
- percentage lease.
Net Leases
A net lease is the most common commercial lease. It is where you split the operating costs for the business premises between you as the commercial landlord and your commercial tenant. Operating costs consist of:
- insurance;
- property taxes, and
- maintenance.
There are three types of net leases:
- single net lease
- double net lease, and
- triple net lease.
Single Net Leases
A single net lease is a commercial lease where your commercial tenant is responsible for paying for one of the operating costs for the commercial premises; the property taxes. Therefore, you are responsible for two costs, making it an attractive lease for a tenant. They can be a good investment as you can determine their income. You can refer to a net lease as ‘N’.
Double Net Leases
A double net lease is a commercial lease where you make your tenant responsible for two operating costs for the commercial promises. You may hear it called ‘NN’. The operating costs will typically be for property taxes and insurance payments. Therefore, this makes you the commercial landlord responsible for property management costs. These will include:
- maintenance;
- structural work; and
- general upkeep.
The fact that your commercial tenant is responsible for more operating costs than you make this an attractive choice for you as a commercial landlord. Also, leaving your tenants responsible for property taxes or business rates makes sense, as these will differ for each tenant. This allows your tenant to liaise with the local council. Your tenants make payments for the operating costs they are responsible for with their rental fees.
Triple Net Leases
On the other hand, a triple net lease or an ‘NNN’ is a commercial lease where your commercial tenant will pick up all operating costs for the business processes. Therefore, rent is often lower on these types of net leases. A triple net lease is standard for:
- landlords who are investors;
- portfolios of commercial properties which go to market simultaneously
- those who lease a large office building;
- those who lease a shopping centre; and
- industrial parks.
A triple net lease can also be a Full Repairing and Insuring Lease (FRI). If you offer a triple net lease, you pass a more significant financial responsibility to your commercial tenant. This gives them more freedom in the lease regarding certain costs and utilities. In return, you will have a regular income, where you can do little to receive actively.
However, remember that all operating costs for the property lie with your commercial tenant. Therefore, you should protect yourself with this in mind.
Continue reading this article below the formCall 0808 196 8584 for urgent assistance.
Otherwise, complete this form and we will contact you within one business day.
Key Takeaways
Net leases are the most common type of commercial lease in the UK. They pass on some or all of the operating costs for your commercial premises to your tenants. Furthermore, there are three types of net leases:
- single net lease;
- double net lease; and
- triple net lease.
Each passes a different level of responsibility for paying operating costs to a tenant.
If you need help understanding net leases in the UK, LegalVision’s experienced leasing lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. So call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
A commercial lease agreement is a legally binding contract between you as a commercial landlord and your commercial tenant, which governs their use of your property as their business premises.
A net lease is a type of lease agreement where a tenant bears some responsibility for the operating costs of the premises. This can include property taxes, property maintenance and property insurance.
We appreciate your feedback – your submission has been successfully received.
