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Commercial Real Estate: Important Terms You Must Know

The commercial segment is an integral part of the Indian real estate market. With REIT and RERA, the market has become more powerful than ever. However, those investors who are new to this market, there are many jargons that they must know for smooth business functioning. Although terms like leasing, expenses, fixtures, turnkey, etc. are easy to understand, a deeper understanding is still necessary. So, to understand these terms in detail; read this blog carefully:

Gross Lease

A gross lease which is also known as a full-service lease means that the landlord through whom the commercial property is taken on rent is wholly and solely responsible for any kind of wear and tear on the building. Here, the landlord pays all the renovation and maintenance costs like tax, insurance, utilities, etc. from the rent received from the tenant. A tenant has just to pay the rent.

Net Lease

A net lease, on the other hand, is the opposite of what we have read above i.e. gross lease. Here, a tenant not only has to pay the rent but at the same time, also have to bear all the additional expenses like management, tax, utilities, maintenance charges, etc. A net lease is classified into three parts:

Single Net Lease: Here, the tenant has to pay the rent and some portion in charges like Property tax, utilities, cleaning and maintenance services. The remaining charges occurred are paid by the landlord.

Double Net Lease: Besides the rent, the tenant has to pay for insurance amount, property tax as well as utility services. The cost of structural repairs and common area maintenance is taken care of by the commercial property owner.

Triple Net Lease: This type of lease works in favour of the property owner. Here, the tenant has to pay the complete rent and also have to bear maintenance and other additional charges. Popularly known as Net Net Net Lease (NNN), a tenant, in this case, must negotiate on lease terms and rent before signing rent agreement with the landlord.

Modified Gross Lease : Just the opposite of triple net lease, this lease is tenant-friendly and hence is quite popular in the commercial rental segment. Here, the rental agreement can be modified and finalized after a deep discussion between the tenant and the landlord. However, expenses such as janitorial services and electricity are not included in the agreement and must be discussed beforehand.

Percentage Lease : It is a type of lease agreement wherein apart from paying the base rent; a tenant also has to pay a percentage of the gross sales over a certain minimum. The two are decided before signing the agreement and taking the premises on lease. Such type of agreement is popular in the retail segment when a tenant leases a space in a mall.

Incidental Expenses : Incidental expenses are those charges that a tenant has to pay apart from the rent. These expenses include insurance of the property, tax, utilities, maintenance, common area costs, and repairs and renovations.

Turnkey Improvement : These are the changes made by the landlord just to attract potential tenants to their commercial space.

Leasehold Improvement : These changes are usually made by the landlord to help the tenant set up their business or office as per their requirement in the premises.

Trade Fixtures : A trade fixture comprises of items like computers, furniture that a tenant can take away with them when they have to vacate the leased space. You can’t take those items that can damage the property in any form.

So, while leasing any commercial property, a deep understanding of these terms and their inclusion in the rent agreement is necessary to maintain a cordial relationship between the property owner and the tenant.

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