By Bobby Misko
Thinking about leasing space for your business? Have you heard the terms, “Full Service Gross,” “Modified Gross” and/or “Triple Net” and don’t know what to think? If so, you’re not alone – but wait – there’s good news! The basics of these common commercial lease types are not quite as intimidating as they might sound.
In general, the major differences between the three lease types relates to who is responsible for paying for the building operating expenses, Landlord or Tenant. Here are a few definitions that will help in understanding the different lease types:
Common Area Maintenance (“CAM”) – CAM’s typically include property taxes, building/project insurance (tenants are responsible to obtain their own separate insurance for the leased premises), landscaping, exterior lighting, common area utilities, building and parking lot maintenance, fire sprinkler systems, water and property management fees. CAM’s are essentially the general operating expenses for a building or project.
Base Year Expense Stop (applicable to MG and FSG Leases) – Typically the year in which you execute your lease will be considered the “Base Year” (If you sign more than half way through any given year, you should negotiate the following year as your “Base Year”). In the Gross Leases (MG and FSG defined below) there is a certain level (or maximum amount) up to which the landlord will pay certain CAM’s for the building (“Expense Stop”). If the CAM’s exceed the Base Year Expense Stop in subsequent lease years (the years that follow your Base Year), the higher amount is passed through on a pro rata basis to the tenants of a building and become the tenants’ responsibility. In the Las Vegas market, Base years are generally calendar years (January – December).
Simple Example:
Bob signs a MG lease (explained below) with a 2015 Base Year. The Expense Stop for the lease is $1.00 per square foot for 2015. This means the Landlord will pay the first $1.00 per square foot of the annual CAM’s every year of the tenant’s lease term. If in 2016, the CAM’s rise to $1.10 per square foot, the $.10 difference will be passed through on a pro rata basis to the tenants of the building.
For a breakdown of the three lease types, go to bongiovilaw.com.
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