While there is no absolute rule regarding a tenant paying utilities when renting or leasing commercial property, it is common for the tenant to pay for his own utilities. There are a number of lease types used in residential and commercial property management, such as the gross lease, net lease, percentage lease and ground lease. The agreement between the landlord and tenant ultimately determines what the tenant pays.
Gross Lease
The gross lease is one where the tenant pays a fixed payment and the property owner pays the other expenses on the property, such as utilities, taxes, repairs and insurance. While this type of lease is more common as a residential lease, some commercial landlords offer gross leases. However, even in a gross lease, all types of utilities would not typically be included. The landlord might pay the water, yet not the electric or gas, for example.
Net Leases
Net leases are common commercial leases. In the triple net, or net-net-net, the tenant pays a basic rent and an additional payment to cover property taxes, assessments, maintenance, utilities and other expenses on the property. This additional fee might increase, if the expense increases for the landlord. As with all leases, terms can vary.
Percentage Lease
In a percentage lease, the tenant pays a basic rent and his own utilities, along with a percentage of the gross or net sales to the landlord. Commercial property designed for retail, such as shopping centers, frequently use percentage leases. The principle behind a percentage lease is that the center attracts business and the tenant benefits financially. One way a center attracts business is to have a popular retailer (or anchor store) as a tenant. In some situations, the anchor store owns the complex.
Ground Lease
In a ground lease, the tenant not only pays rent on the land, but is financially responsible for paying for all improvements, maintenance and utilities. Initially, the tenant rents unimproved land. Typically, ground leases are for a long period of time, such as 50 or 99 years, enabling the tenant to recoup his investment on the property's improvements. A ground lease often includes a net lease.
Tags: tenant pays, ground lease, anchor store, attracts business, basic rent
