Types of Retail Lease
There are several types of retail leases with different structure and terms, including:
1. Full Service Gross Lease: In Full Service Gross Lease, the tenant is responsible for paying a fixed amount of rent to the landlord and the landlord takes up the responsibility to pay the operating expenses like property taxes, insurance, maintenance, utilities, and common area expenses (CAM). This structure of lease imposes a predictable burden on the shoulder of the tenant, however, the the cost of operating expenses may be incorporated into the base rent.
2. Net Lease: Net lease structure shifts the burden of operating expenses from landlord to tenant and the landlord bears the cost of basic building structure only. The operating cost paid by the tenant depends on the type of net lease agreed upon by both parties:
- Single Net Lease (N Lease): Under this structure, the tenant bears the cost of property tax in addition to the base rent.
- Double Net Lease (NN Lease): Under this structure, the tenant pays base rent plus property taxes and insurance.
- Triple Net Lease (NNN Lease): Under this structure, the tenant pays property taxes, insurance, and Common area maintenance (CAM) expenses along with the base rent amount.
3. Percentage Lease: Percentage Lease is a retail lease structure under which the tenant is liable to pay a certain percentage of their gross sale over a predetermined threshold to the landlord in addition to the base rent. The landlord benefits directly from the tenant’s sales performance and this is common in shopping centers and malls.
4. Modified Gross Lease: A modified Gross Lease is a mixture of gross and net lease structures. Under this type of lease, the tenant pays the fixed base rent plus a portion of operating expenses. Both parties negotiate and split the operating expenses that are clearly outlined in the agreement document. The burden of both the parties is distributed.
5. Ground Lease: Under this, land is leased out by a landlord to a tenant for a specific period, generally for a longer lease term. The tenant takes up the responsibility to construct and maintain the building on the leased land, while the landlord retains ownership of the land. The lease agreement outlines the provisions related to rent structure, property improvements, renewal, and lease termination.
6. Short-Term or Pop-Up Lease: A short-Term or Pop-Up Lease is a lease agreement with a shorter lease term say for a few weeks to several months. Short-term leases enable the landlord to earn income during off-peak periods and are suitable for tenants who want to test new markets, promote seasonal products, or capitalize on special events without committing for a longer duration.