When it comes to property investment, you have so many options to consider. That is why you need to carry out in-depth research on the types of leases at your disposal. And do your due diligence before approaching any net lease advisor such as Signnn for guidance.
Due to issues such as capital restrictions, you may find it unaffordable to acquire property directly. Thus, you might want to consider a lease such as a modified gross lease. That is because such are long-term and allow you to have better control of your property.
Most people confuse gross leases and modified gross leases. In this post, we seek to clarify their difference. And the perks as well as drawbacks of this lease type.
Gross Lease
The gross lease comes with a base rental fee for the business or tenant. The commercial lease varies from the net lease that requires the tenant to cater for basic rent plus a percentage of other expenses. That includes insurance and deductibles, maintenance costs, and taxes on the commercial property.
Instead of settling a part of other expenses, the tenant needs to pay higher rent to the property owner in gross lease. In this lease type, the rent is already inclusive of the provision for these extra expenses.
Modified Gross Lease
Modified gross leases are mainly associated with office buildings or stand-alone buildings. While the modified gross lease is almost like a gross lease, the lease type has a few characteristics as the net lease. The lease type lets the tenant pay rent plus estimates of some of the property expenses. That may include part of the insurance costs, upkeep, and maintenance. The property owner pays the rest, such as property taxes.
In other words, the tenant should take care of all the expenses pertaining to the property, while the landlord takes up all the operating ones. The expectations of both parties get determined on the lease contract. Therefore, both parties know what they are responsible for, and what is outside of their responsibility?
Yet, not all modified gross leases are similar. Some vary depending on the property type and property terms.
The Perks And Drawbacks Of Modified Gross Leases
A modified gross lease comes with perks and drawbacks for both the landlord and the tenant.
The Perks
With modified gross leases, there is no set collection of financial responsibilities. And how they should get divided between the property owner and the tenant.
For the property owner, they stay in control of the crucial aspects of their property. That means that they have total control over the maintenance companies, taxes, et Cetra that work for their business. All this is through the tenant’s rent.
The tenants don’t have to assume the responsibilities and expenses of property owners. That lets them focus more on growing their business.
The Drawbacks
As mentioned above, the terms of modified gross leases vary from one property owner to another. Both tenants and property owners must understand the terms of the gross lease before signing any contracts.
The property owners have to assume most of the responsibilities within their property. That means that they have to dedicate their time, money, and other resources to ensure that their property runs smoothly.
It also means that the property owner handles any financial risks and unexpected costs that accrue when the property needs repairs and maintenance.
For the tenant, it means that they will have to share the responsibility of the property as outlined in the deal. That, in one way or another, exposes them to financial vulnerabilities. And unexpected expenses.
Also, the tenant has less control over aspects that may impact their business. For instance, if the property owner is in charge of all the repairs and upgrades, the tenant has no control over how the property will look.