A gross commercial lease agreement is a specific type of commercial rental contract used for entering into a binding agreement with a business-owning tenant. With the lease, the landlord pays for all of the property’s taxes, maintenance, and insurance, allowing the tenant to pay a single flat rental amount. While the landlord only charges the tenant for the base rent, they can recuperate costs by multiplying the base rent by a load factor, which translates to the tenant paying for their portion of the common areas they use.
Also known as a:
- “Gross rent lease”
- “Full-service lease”
What is a Gross Lease?
Definition: A type of business-focused leasing contract that puts all of the property’s operating expenses on the landlord, leaving the tenant with the responsbility of paying a single flat rental fee.
The principal message behind a gross lease is that it is straightforward for tenants, giving them the ability to plan for future payments with certainty. Utilities, insurance, maintenance, and taxes are paid by the landlord. On the surface, a gross lease may sound undesirable for landlords, as the tenant gets to skip out on several costs. In reality, however, landlords often profit the most with a gross lease, as they often charge a base rent that covers all costs with the assumption that the tenant is consuming a considerable amount of water, heat, electricity, and so on. This way, the landlord doesn’t have to worry about taking a hit from a tenant that uses one (1) or more utilities in excess.
When to Use a Gross Lease?
A gross lease is most commonly used in the rental of self-storage, apartment rentals, and any other type of lease in which the tenant expects to pay a single fee that incorporates all of the expenses. While a type of commercial lease, it is not used as frequently as net leases. This is due to commercial renters being especially savvy, and understanding that they can pay a lesser rent by taking on the responsibility of their use of utilities and other costs.