Commercial Real Estate 101: Types of Leases

Let Us Break it Down for You: Types of Leases

Let’s say you’re leasing an office space for rent in Pasadena for yourself and/or your team. You should know that this requires some homework and a basic understanding of the different types of leases used in commercial real estate transactions, especially with office space for rent in Pasadena. From startups looking to secure their first office space for rent in Pasadena, to large businesses looking to upgrade to a larger building, it’s important to note that each tenant will inevitably have different needs. Any particular type of lease may or may not be practical for everyone. There are two main types of commercial leases that are common, but very different from each other: Gross Lease and Net Lease. Let’s explore the pros and cons of each to consider when looking for office space for rent in Pasadena.  

Gross Lease

A Gross Lease is what you will likely find in office buildings when looking for smaller suites – we have plenty of these kinds of office space for rent in Pasadena. Also known as “Full-Service” or “Modified Gross,” these leases can be considered to have the most “bang for your buck.” A Full-Service (FS) lease is almost “all-inclusive” in that they cover all expenses like utilities and maintenance fees within the base monthly rent. In other words, your “rent” includes your internet, janitorial maintenance, and any portion of property taxes associated with the property that you are a tenant of. A Modified Gross (MG) lease covers most expenses in the base monthly rate but not all. Usually, some costs like janitorial fees and some utilities are included but others like insurance fees and property taxes are not included and are at the expense of the tenant when leasing these kinds of office space for rent in Pasadena. Thus, an MG lease is “modified” from a Full-Service lease.

There are definitely some pros in obtaining an office space for rent in Pasadena with a Gross Lease. For instance, FS leases are extremely startup friendly and small business oriented. Since they include most costs, it’s extremely convenient for a newly established business to budget around one monthly base cost associated with an office space. Most Gross leases, especially FS, have a less stringent qualification process to further ease the pain. Many Gross leases also include amenities that other lease types wouldn’t, like furnished offices, administrative support from a receptionist, and the opportunity to network with other like-minded professionals. This is a great perk that comes with a lot of office space for rent in Pasadena.

While “all-inclusive” sounds more convenient than not, there are few cons to consider. Being that most FS and MG leases are within shared spaces, you must account for just that, sharing common areas within office space for rent in Pasadena. There is also little room to provide a truly customized experience for businesses when it comes to configuration of a space, office décor, and business signage. Some industries also find that close proximity to other organizations is counterproductive when confidentiality, privacy, and stringent business practices must be met.

Net lease

A Net Lease is basically a base rent that is separate from any additional fees associated with a tenancy in an office space for rent in Pasadena. The most common type of net lease is a triple net (NNN) and requires tenants to cover all additional costs. Utilities like electricity, internet, facility maintenance, a portion of property taxes and insurance are tenant expenses on top of rent for their Pasadena office space. NNN leases are typical when leasing a full floor of a high-rise or a complete retail space. Operating expenses are usually not covered either and at the expense of the tenant.  

While it sounds alarming to have to consider so many expenses, some pros to consider are being able to choose your own utility providers for things like internet, phone, and other systems, truly catering to your needs at your office space for rent in Pasadena. Most tenants of NNN are also able to configure spaces in ways that make sense to them, including signage, and sometimes even get assistance from landlords and owners. Tenants have more freedom to conduct business the way they want.

Cons to consider when exploring a NNN lease is first, a more stringent process to qualify for office space for rent in Pasadena. Financials, good credit, and references are usually required when applying for an office space for rent in Pasadena that has a NNN lease. Other things to consider is the variance in price when it comes to price per square foot, rent abatement, tenant improvements, and parking. These leases usually require legal assistance in reviewing a contract and will involve a landlord and/or a landlord agreement. These kinds of leases need the utmost attention as they are usually one-sided with limitations on the rights of the tenants and liabilities of the landlord.

There you have it. But, you are not alone in trying to find the right office space for rent in Pasadena! Give us a call to discuss further! We’re here to help: 1-888-518-9168