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What is a Net Lease?

Updated on May 12, 2024 , 396 views

A net Lease is a contractual agreement where a lessee pays either a part or all of the Taxes, maintenance costs and insurance fees for a property along with the rent. Net leases are generally used in commercial Real Estate.

Net lease

In the simple form of a net lease, the tenant has to pay for every cost that is related to the property as if the tenant is the real owner.

Use of Net Lease

Usually, net leases are used in practice for commercial agreements of real estate where the tenant, known as a lessee, pays rent along with other operational costs of the Landlord, also known as the lessor. This way, the entire management process becomes straightforward for the landlord, which could be favourable for them if they are managing several properties.

How does a Net Lease work?

A lease is a kind of contract wherein one party gives the use of a property or Land to the other party in exchange for periodic payments over a certain time period. These are binding contracts, generally for real estate and personal property. In a lease contract, you can find the duties and responsibilities of every party that are enforceable legally to each party. Consequences can be enforced in court and could be anywhere between mild to severe, based on the clauses of the lease that have been broken.

A net lease is structured in such a way that the lessee covers a lot of or all portions of the cost to Handle and operate the property. The property owner gets the advantage of decreasing the risk for any upsurge in insurance, property tax and other types of fees along with everyday operations of the property. Usually, the lessee agrees to take the extra risk and fees to decrease a part of the property’s rent.

Net Lease vs Gross Lease

A net lease comprises the payment of extra costs linked with the property. In contrast, the gross lease only carries a Flat fee that has to be paid, and all the other costs are paid by the lessor. These costs include:

  • Taxes
  • Utilities
  • Insurance
  • Repairs
  • Maintenance
  • Other operational costs

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Types of Net Leases

The meaning of net lease is broad and far from undeviating across the country. Rather, such a lease is broken down into three fundamental types that deal with the primary cost categories of insurance fees, maintenance and taxes, along with the rent that the landlord charges. These are:

  • Single Net Lease

Being a tenant, if you sign one single net lease, you pay one of the three categories of expenses

  • Double Net Lease

If you have a double net lease, you will have to pay two out of three expense categories. These are also known as net-net leases

  • Triple Net Lease

Also called a net-net-net lease, this one is where you pay all three categories of expenses. Triple net leases are generally whole building leases with one tenant for a long term, typically a decade or more

Even with these breakdowns mentioned above, the real definition of a net lease is based on the details in every contract.

Basically, the net lease is the opposite of the gross lease, where the landlord takes the liability to cover every expense category in exchange for a certain fixed payment. Practically, a modified gross lease and a double or single net lease can mean the same. For instance, a modified gross lease may ask the tenant to pay Building Insurance costs and may also be classified as a single net lease. Yet again, the lease’s details matter way more than whether the lessor regards it as a gross or net lease.

Wrapping Up

Now that you have understood the net lease in detail, it is time to make the most out of it. If you are planning to rent a property for commercial use, ensure that you come up with a legally adequate agreement so as to avoid any negative consequences in the future.

Disclaimer:
All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.
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