Lease Types Explained: Choosing the Right Fit for Your Business

Introduction:

Understanding lease types is essential for making informed decisions about your industrial space. Each lease structure has its own benefits and trade-offs, and selecting the right one can significantly impact your operational costs and flexibility. In this post, we’ll break down the most common lease types, highlight the advantages of NNN (triple net) leases, and explain why Weston recommends NNN leases for industrial tenants.

Gross Leases:

Gross leases, often referred to as full-service leases, bundle all costs into a single monthly payment. This includes base rent, property taxes, insurance, maintenance, and utilities. While gross leases offer simplicity, they lack transparency and can result in higher overall costs as landlords often build a premium into the rent to account for variable expenses.

This lease type is more commonly found in office settings rather than industrial spaces. For businesses with predictable utility usage or minimal maintenance requirements, gross leases may not provide the flexibility needed to control operational costs.

Modified Gross Leases:

A modified gross lease offers a middle ground between gross and NNN leases. In this structure, the landlord covers some expenses (such as property taxes or insurance), while the tenant is responsible for others, like utilities or maintenance.

Modified gross leases can offer tenants more control than full-service leases while reducing some of the financial unpredictability of NNN leases. However, the specifics of these agreements can vary widely, so tenants must carefully review the terms to ensure they align with their budget and operational needs.

Triple Net (NNN) Leases:

NNN leases are the most common lease structure for industrial spaces and offer tenants transparency and control. In a NNN lease, tenants pay base rent along with their share of property taxes, insurance, and operating expenses.

This separation allows tenants to see exactly how their payments are allocated and manage variable expenses. While the variable nature of NNN leases requires careful budgeting, this structure allows businesses to align expenses more closely with their actual usage, creating opportunities for cost savings.

With decades of experience, Weston has perfected this leasing model, offering tenants the transparency and flexibility they need to succeed. Our NNN properties are designed to provide operational value while ensuring equitable cost-sharing.

Explore Weston’s available properties to find spaces with clear and predictable lease terms that meet your business goals. View Our Listings Here.

Why Weston Prefers NNN Leases:

At Weston, we believe NNN leases create a win-win scenario for both landlords and tenants by fostering transparency and allowing tenants greater flexibility in managing their costs.

Our tenants appreciate the predictability and control that NNN leases provide, especially in dynamic industries where operational costs can fluctuate. NNN leases give tenants direct visibility into their share of property expenses, helping them optimize their operational budgets.

Key Benefits of NNN Leases

• Cost Savings in Variable Expenses: In a NNN lease, tenants benefit when shared costs fluctuate in their favor. For example, Cleveland’s snowfall varied significantly over recent years—over 50 inches in 2020/2021 and 2021/2022, compared to less than 25 inches the two prior winters. With a NNN lease, tenants paid only for the actual snow removal costs incurred each season, reducing expenses in lighter winters. In contrast, gross lease tenants would have continued paying the higher fixed amount, regardless of the actual lower cost.
• Tax Reductions Can be Passed to Tenants: When landlords successfully contest their property tax valuations and secure a tax reduction, NNN lease tenants directly benefit from lower tax obligations. In a gross lease, however, tenants would continue paying the same fixed rate, missing out on these savings.
• Easier Market Comparisons: NNN leases provide a much clear breakdown of rent and operating costs, making it easier for tenants to compare different properties and negotiate favorable lease terms. Gross leases, by contrast, combine all expenses into a single rate, making it difficult to assess true market value.
• Lower Operating Costs Through Economies of Scale: A good landlord actively works to manage and reduce NNN costs. At Weston, our property managers are incentivized to keep expenses down, ensuring fair and competitive pricing. Additionally, we leverage our portfolio size by bidding out service contracts annually and awarding multiple properties to preferred providers, creating attractive cost efficiencies that directly benefit our tenants.

By focusing on NNN leases, Weston builds long-term partnerships with tenants who value cost management and financial transparency as much as we do.

Discover how NNN leases align with your business’s needs. Explore Our Listings Here to learn more about our available properties.

Benefits of Understanding Lease Types:

Educating yourself on lease structures empowers you to negotiate confidently and choose terms that align with your business’s goals. By selecting the right lease type, you can ensure financial stability and create a solid foundation for your operations.

Next Steps:

In the next post, we’ll dive into market research, showing you how to analyze trends and metrics to identify the best leasing opportunities for your business.

In the meantime, access our free lease type comparison guide below to review the benefits and trade-offs of each lease structure and learn more about why Weston recommends NNN leases for industrial tenants.

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