Leasing Commercial Premises to fit your business

Although buying commercial property can be a great investment, it is not an option for many new businesses. Leasing commercial premises affords the possibility to enjoy a great location without entering into a long-term agreement. There are commitments, though, involved in leasing commercial property.

Gross Lease vs. Net Lease for Commercial Premises

Leases for commercial premises are usually categorized as gross or net leases and these differ in terms of the financial responsibility of the tenant and the landlord. A gross lease, or full service lease, is an all-inclusive agreement that requires that the occupant pay a fixed sum that covers all property expenses. Tenants are responsible for paying insurance on the commercial property and taxes.

Net leases are usually cheaper but require tenants to pay for all expenses as they occur. In single net leases, tenants pay rent and a share of the property tax, whereas double net leases include rent and a share of the insurance and tax. Triple net leases require tenants to pay all property insurance and taxes.

The Advantages of a Master Lease Agreement

A third option is a master lease agreement, which is essentially a rent-to-own arrangement. In a master lease agreement, the tenant is responsible for all property expenses, including maintenance, insurance, utilities and taxes. The landlord retains ownership of the property and collects rent.

A master lease is entered into contractually by the tenant and owner without intervention from the bank. The extension of the lease can be agreed upon initially, after which the landlord may choose to sell the property to the tenant. The advantage of a master lease is that a tenant can exploit the commercial property for profit and ultimately choose to own the property if business is good.

Leasing can be a good alternative to buying commercial premises for first-time business owners who need to test the waters of their enterprise. The risks are lower, as the tenant does not bear the full responsibility of ownership. With leasing, the ultimate decision to buy the existing or a new property can be based on business performance, which can give business owners a few years to establish and fine tune their operations.