When you think about leasing a big commercial space, you should be fully prepared mentally as it’s a huge undertaking that requires massive monetary investments. When you rent a business space for the first time; it is not only essential to research the market well but also to have relatively good knowledge about the types of commercial leases that can be availed in India.
In this country, commercial real estate leases are typically term-based. The contract expires after a specific amount of time. In older days, the leases used to be permanent and ever-lasting. Nevertheless, given the current market scenario, and the steep rise in property rates, the picture is not quite the same anymore.
In India, you will find three basic kinds of commercial real estate leases. While the terminologies may change from place to place, having a fair idea about the concepts could help you to negotiate the best possible deal.
Here are the three types of commercial leases India:
Gross Lease
Also referred to as a full-service lease, it is the kind of lease where the landlord is required to pay for all the property-related expenses out of the rent given by the tenant. The list of such expenditures comprises insurance, maintenance, and taxes.
While the landlord is fully accountable for the building, the tenant’s job is to fully focus on the business. It is mostly used for multi-tenant buildings.
The biggest benefit is that tenants don’t have to be concerned about paying for taxes, insurance, or maintenance. The lease contract states the entire expenses of leasing the commercial space and also the conditions under which the prices may increase in the future.
Net Lease
A net lease is a commercial real estate lease wherein tenants not only have to pay for the space they have occupied but also have a contractual agreement where the lessee has to pay a part or all of the taxes, insurance fees, and maintenance expenses for a property apart from the basic rent.
The net lease comprises of single net lease, double net lease, and triple net lease. One of the main benefits of the net lease is that tenants can regulate their expenses in a better manner by monitoring how utilities are used. They are required to only pay for the actual property tax and the amount for maintenance. If there is no need for extensive maintenance or if the property taxes fall, they may be able to save some money.
Modified Gross Lease
Even though it bears resemblance to gross lease, there are some differences. Although the rent is given in a lump sum, there is still some compromise that can happen between the parties. The parties to the agreement can negotiate the expenses which can be integrated into the base rental price.
Additionally, the costs like the janitorial services and electricity are not included in this list. Since the modified gross lease is tenant-friendly, it seems to be the most popular among tenants. Corporates largely favor modified gross leases over others since they are not accountable for the maintenance of office buildings.
In a nutshell, when it comes to commercial real estate leasing, each type has its pros and cons. You need to decide on what is the most suitable for your business based on your budget.
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