A lease is an agreement by which the owner of a property (the “lessor”) grants the right of possession to a tenant (the “lessee”) for a specific period of time (the “term”) for a predetermined amount of money (the “rent”). A “leasehold estate” is the space occupied by the tenant.
Common types of leases include:
Flat or Fixed Leases – rent is set for a definite period of time.
Percentage Leases – the lessee pays either a base amount plus a percentage of gross income or, the higher of a base amount or a percentage of the business’s gross income.
Step Leases – the rent is increased at a set amount on an annual basis during the life of the agreement. The increase is to cover the lessor’s expected increases in expenses and is based on estimated rather than actual costs.
Cost-of-Living Leases – the rent is tied to rises in the cost of living i.e. the rent goes increases with the general inflation.
Gross Leases – the lessee pays a flat monthly amount. The lessor pays for all operating costs for the building. In some cases, the lessor pays for electricity, heat, and air conditioning. There is typically an escalation clause that allows the landlord to increase the rent annually to offset increased expenses.
Net Leases – the lessor pays a base monthly rent plus some of the expenses with increases based on actual costs rather than on estimates. The rent increases at the time that the landlord incurs an increase in costs and in some cases, the lessor pays rent plus the proportionate cost of the real estate taxes.
Net-Net Leases – The lessor pays the base rental amount, and a proportionate amount of real estate taxes, and insurance premiums based don the space occupied.
Net-Net-Net Leases – The lessor pays the base rental amount plus the real estate taxes, insurance, maintenance, and repairs.