Texas Commercial Lease Types & Commercial Lease NegotiationBy James Blake on
In Texas, there is no “standard” commercial lease. Landlords and tenants should prudently review lease agreements and fully understand the allocation all risks, operating expenses, payment obligations, and performance obligations of the parties in order to effectively negotiate a commercial lease.
Understanding the different types of real estate leases is an important foundation because there are many common types of commercial leases in Texas. Advice from a commercial real estate lawyer can be helpful to understand the terms of your lease, to identify hidden risks, and to effectively handle your Texas commercial lease negotiation.
Gross Lease & Modified Gross Lease
Under a gross lease, a commercial tenant pays base rent, but does not pay any additional rental fee for the operating expenses of the commercial property, including real estate taxes, insurance, common area maintenance (CAM), and other operating expenses. Often, the base rent for a gross lease is higher per square foot than the base rent of a comparable property with a different type of lease because operating expenses can be “built in” to the base rent of the gross lease.
In a modified gross lease a tenant reimburses a commercial landlord for some operating expenses, such as common area maintenance expenses (CAM), but many other property operating expenses may paid by the commercial landlord, such as property taxes. A commercial real estate attorney can help protect you and structure your Texas Commercial Lease Pass Through Expenses.
Triple Net Lease (NNN) & Absolute Net Lease
In a Triple Net Lease (NNN), a commercial tenant pays a landlord for real estate taxes, landlord’s insurance, and common area maintenance (CAM). The tenant may also have to pay other commercial lease pass through costs under a triple net lease. Some NNN leases give a landlord broad power and discretion to incur costs that are passed on to tenants, so it’s important for commercial tenants to understand risks that could come from runaway costs.
At the farthest extreme, under a net lease or absolute net lease, a commercial tenant pays all real estate taxes, insurance, and costs of maintenance or repairs, operation, and improvements of the commercial property. Restaurants, retail stores, and commercial property with only one commercial tenant often enter into a net lease or absolute net lease.
Successful commercial lease negotiation requires a deep understanding of the lease agreement. Our business law firm regularly advises small businesses, commercial tenants, and commercial landlords in Texas commercial lease negotiation.
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