Gross lease

A gross lease is a type of commercial lease where the tenant pays a flat rental amount, and the landlord pays for all operating expenses regularly incurred by the ownership, including taxes, electricity and water.[1] Most[weasel words] apartment leases resemble gross leases.[2] The term "gross lease" is distinguished from the term "net lease".

Principle of operation

A gross lease allows the tenant to pay a fixed fee in exchange for exclusive use of the property.[3][4][5] Landlords typically calculate a rent amount that reasonably covers the cost of rent, standard utilities, and other expected and day-to-day expenses.[6]

In a gross lease, the rent is primarily paid by the tenant. The landlord assumes the costs of maintaining the building. This includes parking lots, common areas, and utilities.[7][8] Such an arrangement is attractive to tenants because it allows for predictable monthly payments. However, landlords may charge slightly higher rents to cover these costs.[9][10]

Gross lease is beneficial for some tenants, it allows tenants to accurately plan their living expenses or, in the case of renting to a business, business expenses.[11][12] These leases are particularly advantageous to individuals with limited resources or businesses that seek to minimize variable costs to maximize profits. Companies can focus on growing their business without the complexities of net leases. Rent calculations can be made by analyzing or based on historical data for the property. The landlord and tenant can also agree on the amount and terms of the lease.

A gross lease may cost the tenant more than if the property were used under a net lease. The valuation used to calculate the fixed rent may exceed the actual costs associated with the lease, resulting in a positive net benefit to the landlord and a negative benefit to the tenant.

Types of gross leases

Modified Gross (MG)

In a modified gross lease, tenants typically pay a proportional share of operating expenses.[13]

Full-Service Gross (FSG)

In a full service gross lease, outgoings (operating expenses) are paid by the landlord, but are imputed into the price of the lease.[14]

References

  1. ^ Helewitz, Jeffrey A. (2015). Basic Real Estate and Property Law for Paralegals (5th ed.). New York: Wolters Kluwer. p. 203. ISBN 978-1-4548-5122-6.
  2. ^ H. Kent Baker; Peter Chinloy (7 August 2014). Private Real Estate Markets and Investments. Oxford University Press. p. 97. ISBN 978-0-19-938877-6.
  3. ^ "Gross Lease – Types, Advantages & Disadvantages". efinancemanagement.com. Retrieved 2024-09-29.
  4. ^ "Gross Rent vs Net Rent: What's the Difference?". buttonwood.ca. Retrieved 2024-09-29.
  5. ^ "Understanding Lease Signings: Who Should Be On The Lease And Why". rentprep.com. Retrieved 2024-09-29.
  6. ^ "What does gross rent include?". missionalcall.com. Retrieved 2024-09-29.
  7. ^ "How to Calculate Gross Rent Multiplier & Uses for Investors". www.stessa.com. Retrieved 2024-09-29.
  8. ^ "Net, Gross, Face & Effective Rent: What's The Difference?". www.tenantcs.com. Retrieved 2024-09-29.
  9. ^ "Gross lease". fiveable.me. Retrieved 2024-09-29.
  10. ^ "What is Triple Net (NNN) vs Gross Lease in real estate?". leni.co. Retrieved 2024-09-29.
  11. ^ "Industrial Gross Lease: Everything You Need to Know". ipgsf.com. Retrieved 2024-09-29.
  12. ^ "What is gross rent?". www.bankrate.com. Retrieved 2024-09-29.
  13. ^ Chen, James. "Understanding Modified Gross Leases". Investopedia. Retrieved 2021-03-03.
  14. ^ Mastroeni, Tara. "What is a Full-Service Gross Lease? Landlord Guide". Millionacres. Retrieved 2021-03-03.
  • Principles and Practices of New Jersey Real Estate 6th Ed by Frank W. Kovats, DREI.


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See also: Net lease