Types of Commercial Leases

Contact Neufeld Legal PC for commercial leasing legal matters at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com

Single Net Lease / Gross Lease (Net or N) – A single net lease is a lease where the tenant agrees to pay a monthly lump sum base rent as well as the property taxes. The landlord is responsible for all other operating expenses of the premises. Due to cost increases, many single net / gross leases contain escalation clauses that increase rents over time to offset tax increases and higher insurance and maintenance costs.

Double Net Lease (Net-Net or NN) – A double net lease is a lease where the tenant agrees to pay a monthly lump sum base rent as well as the property taxes and the property insurance. The landlord is responsible for all other operating expenses of the premises, including structural repairs / replacement and maintenance.

Triple Net Lease (Net-Net-Net or NNN) – A triple net lease is a lease where the tenant agrees to pay a monthly lump sum base rent as well as the property taxes, the property insurance, and the maintenance (the 3 Nets). In such a lease, the tenant is responsible for all costs associated with repairs and replacement of the structural building elements of the property. Under a triple net lease there are a few legal defenses which may relieve a tenant of his/her lease responsibilities. For example, a triple net lease may relieve the tenant of his responsibility if the property is subject to an eminent domain proceeding.

Bond Lease (Absolute Triple Net Lease or ‘Hell or High Water’ Lease) – A bond lease is the most extreme variation of a triple net lease, where the tenant carries every imaginable real estate risk related to the property; including the obligation to rebuild after a casualty, regardless of the adequacy of insurance proceeds, and to pay rent after partial or full condemnation. Bond leases are not terminable by the tenant, nor are rent abatements permissible. As such, the rent is absolutely net under all circumstances, equivalent to the obligations of a bond. (Exemplified by a leaseback arrangement where the retailer leases back the building it formerly owned and continues to run the store.)

Percentage Lease – A percentage lease is a lease where the tenant pays a percentage of the business’ gross income as rent, often in addition to a minimum fixed rental payment (i.e., as part of a gross lease or triple net lease). The amounts of the minimum fixed rent and the percentage of gross income vary by location, type of business, and prevailing economic conditions and are subject to negotiation between landlord and tenant.

Ground Lease – A ground lease is a lease where the landlord rents raw or minimally improved land to the tenant, who constructs and occupies a building or buildings on the land. Usually, the tenant owns the building while the landlord retains ownership of the land. A ground lease is often a long term, triple net lease, with the tenant paying fixed rent on the land, as well as all operating costs and expenses for both the land and the building.

Shell Lease – A shell lease is a lease where the tenant rents a building that is not completely finished and agrees to finish the interior and install any necessary trade fixtures. Thereafter, the lease can become a ground lease, with the landlord retaining ownership of both the building and land, or a long term, triple net lease.

Graduated Lease – A graduated lease is a variable lease where the specified rent increases or decreases are scheduled to occur on specific future dates. Graduated leases permit a new commercial tenant time to establish a successful business and an assured revenue stream before rent increases occur, at a pre-determined rate (in other circumstances, it can provide predictable decreases for off-season periods).

Index Lease – An index lease is a variable lease where the rent payments are calculated pursuant to an established financial index (i.e., government reported indexes such as the Consumer Price Index (CPI)), resulting in periodic rent increases / decreases.

Oil, Gas, and Mineral Leases – An oil, gas or mineral lease allows a tenant to explore for these commodities on land owned by the landlord. A flat fee is usually paid for the right to explore for oil, gas or minerals, with an option to renew for another lease period. This option can last indefinitely until a well or mine is constructed. If mineral substances are located and extracted from the land, the landlord receives royalty payments in addition to rent payments. This arrangement continues as long as substances can be extracted. Most oil, gas, and mineral leases also contain a clause that allows the lease to expire if no profitable commodities are discovered.

Sale and Leaseback – A sale and leaseback is a financial strategy whereby the original owner sells its property to the new owner, who subsequently leases the property back to the original owner (effectively converting a freehold estate into a leasehold estate).

For knowledgeable and experienced legal representation in negotiating, reviewing and drafting lease agreements, and protecting your business’ legal rights thereunder, contact lease lawyer Christopher Neufeld at 403-400-4092 [Alberta], 905-616-8864 [Ontario] or Chris@NeufeldLegal.com.

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Contact us via email at chris@neufeldlegal.com or call 403-400-4092 / 905-616-8864.