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Taking out a commercial lease agreement as a tenant is a significant and costly step. You are committing to the sole occupation of a property or part of it for your business premises for a fixed term in return for rental payments. Therefore, you want to ensure that you make the right decision when choosing your commercial lease, including selecting the correct type of commercial lease for your business circumstances. Commercial leases require different levels of responsibility for a commercial tenant. Some commercial leases are more common than others, and some are for specific types of property space, such as retail or office space. This article will explain the different types of commercial leases in the UK.
Gross Leases
This means that you have the sole occupation of the property for your commercial premises through a single flat fee as a rental payment. Your landlord will calculate this by incorporating the costs to run the property into one cost. You should be wary that a commercial landlord may overestimate the charges, which means your payment for this type of commercial lease can be high.
Gross leases are common for short-term commercial spaces the landlord tends to maintain, such as multi-tenant offices or retail spaces. However, sometimes a modified gross lease may be available. This means that the commercial lease terms are modified to suit your personal needs as a commercial tenant.
Net Leases
The most common commercial leases are net leases, which come in three main types, as outlined below. A net lease means that you, as a commercial tenant, pay all or some of the costs associated with the commercial premises in addition to your rent. These can include:
- taxes;
- utility bills; and
- maintenance costs.
Single Net Lease
A single net lease is a commercial lease that requires you to pay the property’s taxes, and your landlord will pay the other costs. This type of net lease is rare in the UK.
Double Net Lease
A double net lease is the most common type of lease for a commercial property. Where your commercial landlord owns the whole building of which you rent part, this type of net lease is common.
As the name suggests, you pay two expenses associated with the property, which are:
- property taxes; and
- insurance premiums.
Your landlord will pay the structural and maintenance costs. People may refer to this type of net lease as ‘NN.’
Triple Net Lease
As the commercial tenant, you pay all costs associated with the property in addition to your rent if you have a triple net lease. The costs involved are divided into three types of expenses:
- property taxes;
- net building insurance; and
- maintenance costs.
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Percentage Leases
A percentage lease is based on your business’ revenue. Therefore, you will pay a base rent to your commercial landlord and add a percentage of revenue on top of this. On average, the amount ranges from 1% to 15%. Another name is turnover rent.
Percentage leases tend to be popular for commercial leases in:
- shopping centres;
- retail spaces; and
- leisure spaces such as airports and hotels.
Key Takeaways
If you wish to rent commercial premises for your business through a commercial lease, you should know that different types of commercial leases are available. The three main commercial leases are gross, net, and percentage leases. Each type of lease requires you to pay rent with varying additional payments as necessary. For example, if you have a percentage lease, your rental amount will be a base amount, and then you will pay a percentage of your revenue at the commercial premises on top of this. Net leases, however, require you to pay a rent amount, and then each requires varying additional payments to be made by you as the commercial tenant, such as property taxes.
If you need help understanding different types of commercial leases in the UK, our 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. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
A common type of commercial lease in the UK is a double net lease, where you pay the property taxes and insurance premiums in addition to your rent.
There are three main commercial leases in the UK: gross leases, net; leases and percentage leases.
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