Commercial Real Estate Investing For Dummies. Peter Harris

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       Gross lease: The landlord agrees to pay all operating expenses and charges the tenant a rent that’s over and above the operating expenses. The types of expenses covered include taxes, insurance, management, maintenance, and any other costs associated with operating the property.

       Modified gross lease: This lease is slightly different from the standard gross lease in that some of the operating expenses — such as maintenance, insurance, or utilities — aren’t paid for by the landlord and are passed on to the tenant. These expenses are called pass-through expenses because they’re passed through to the tenant. Many office-type buildings use a modified gross lease.

       Net lease: In a net lease, the tenants pay the operating expenses of the property, and the landlord gets to net a certain amount every month by charging rent over and above the total operating expenses. This lease is favorable in many ways: It’s favorable to landlords because they aren’t responsible for any operational expenses of the property. It’s favorable to tenants because they get to fix up their stores as they see fit and do their own maintenance and cleaning. Net leases typically are customized to fit tenant needs.This type of lease is used mainly by retailers. The landlord takes care of the common area maintenance, and the expense of that is spread among the tenants and billed back to them.Here are the several different levels and types of net leases:Single net lease (N): In a single net lease, the tenant agrees to pay property taxes. The landlord pays for all other expenses in the operation.Double net lease (NN): In a double net lease, the tenant agrees to pay property taxes and insurance. The landlord pays for all other expenses in the operation.Triple net lease (NNN): A triple net lease is most favorable for landlords and is one of the most popular today. The tenants agree to pay the landlord rent plus all other property-related expenses including taxes, insurance, and maintenance. The landlord gets a true net payment. Banks, fast-food restaurants, and anchor tenants typically use triple net leases.Anchor tenants are major tenants, usually the tenant occupying the most space. Anchor tenants are critical in giving value and security to a retail shopping center investor. Their signs are usually the largest and stand out. Major retail chain stores typically are anchor tenants and are called so because they attract other businesses to the shopping center location. They “anchor” the shopping center so to speak.A common clause used in net leases is the expense stop clause, which states that any amount over a certain fixed expense will be charged to the tenant. The fixed expense is a dollar amount agreed on by the tenant and landlord.