Representing Businesses and Individuals in Chicago and Northern Illinois

The various types of commercial lease agreement

Most companies in Illinois and around the country lease rather than own the offices, stores, factories and warehouses they occupy. While residential rental agreements are generally quite straightforward, commercial leases are often complex and filled with provisions dealing with matters such as utility costs, building maintenance and other operating expenses. The kind of lease agreement that commercial landlords offer to their tenants may be influenced by the type of business that will be conducted, the age of the building and the amount of electricity and water that will likely be used.

Many office tenants sign what are known as gross leases. In these situations, the monthly rent covers utilities and building maintenance. Net leases occupy the other end of the spectrum. Double net leases require the commercial tenants to pay their own taxes and insurance, and triple net leases also require them to cover maintenance costs. Absolute leases are at the far extreme and may require tenants to assume financial responsibility for the property.

The modified net lease provides landlords and tenants with a middle ground between gross and net leases. With these leases, tenants are not required to pay maintenance costs until they have occupied the property for a year or two. Businesses with seasonal or sporadic revenue streams may prefer a percentage lease. The rent in these situations is based partly or wholly on the tenant’s monthly sales volume. This type of lease agreement is common in the retail sector where revenues in the fourth quarter often dwarf earnings in the first three quarters.

The goal of a lease agreement is usually a long and productive working relationship. Attorneys with commercial real estate experience could help landlords and tenants to negotiate lease agreements that provide monthly revenues appropriate for the property while giving businesses an opportunity to grow and thrive. Attorneys could also provide assistance when the terms of lease agreements require modification or revision.