What is a 'Gross Lease'
A gross lease is a type of commercial lease where the landlord pays for the building's property taxes, insurance and maintenance. A gross lease can be modified to meet the needs of a particular building's tenants. For example, a gross lease may require the tenant to pay the utility bills.
BREAKING DOWN 'Gross Lease'The opposite of a gross lease is a net lease. Under a net lease, the tenant is responsible for some of the additional costs associated with the property. There are three types of net leases: single net, double net and triple net. Under a single net lease, the tenant pays rent plus property taxes. Under a double net lease, the tenant pays rent plus property taxes and insurance. Under a triple net lease, the tenant pays for rent plus property taxes, insurance and maintenance.
A gross lease allows the tenant to pay one flat fee in exchange for use of the property. The property owner is responsible for much of the associated fees associated with property ownership, such as property taxes and building repair costs, and may be responsible for certain use-based costs, such as standard utilities.
When determining the rental fee for a gross lease, the property owner can take into account all of the costs associated with the property and create a suitable monthly rental amount based on that information. The tenant is paying a fixed monthly fee that can cover a wide variety of expenses being handled by the property owner.
Gross Lease Risks and Benefits
A gross lease may actually cost a tenant more than if the property was associated with a net lease. Since the rental fee is based off of an estimate of the associated costs, created solely at the property owner's discretion, the property owner may overestimate the costs and pass that to the tenant as a higher rate. The benefit is that the exact cost is known from month to month, regardless of usage.
Net leases may allow tenants more control over certain costs and aspects of the property, but they come with a higher level of responsibility. If the tenant agrees to handle maintenance, the tenant may be able to make certain aesthetic changes to the property, such as selecting paint colors or landscaping, but the tenant will also be responsible for any necessary repairs. The tenant can also use discretion in keeping utility costs lower but will have to adapt if those costs rise unexpectedly.
Modified Gross Leases
A modified gross lease holds the major provisions associated with a gross lease, but it can be adjusted to suit the needs of the property owner and the tenant. These modifications may state that the tenant is responsible for the costs associated with the electric utility, but that the property owner is responsible for waste pickup.