How Does A Gross Lease Work?
A gross lease represents a contract between a property owner and a tenant. This contract gives the tenant complete use of the property in a before set period of time. In return, the property owner gets a fixed amount of money on a previously set basis, according to the contract, this payment could be weekly, yearly, and most commonly monthly.
Simply put, the tenant has a flat fee, with no changes whatsoever until the contract finishes, and the property owner has a steady income in the same period of time.
In the fee, the landlord also includes the cost of maintenance, taxes, and fees, but this can vary from one gross lease to another. There are some gross leases where the property owner may include some elements of a net lease, such as a limit on expenses, where he only agrees to spend a certain amount of money on maintenance or fixes.
The Good Side And The Bad Side Of A Gross Lease
There are good sides for both, the tenant and the property owner when a gross lease is used.
Advantages for the tenant:
- A flat fee means that the tenant can plan the expenses ahead, and when you consider gross leases are most commonly used in office spaces, this helps a great deal when planning your business finances.
- Also, a flat fee for the tenant means that, although costs are getting higher, the rent still remains the same as per the contract.
- All the paperwork and documents are handled by the property owner.
Disadvantages for the tenant:
- Since the contract is made between two people, the price of the rent is depending on the property owner, and in most cases of a gross lease, the rent price is higher.
- The maintenance of the property is solely in the property owner’s hands, unlike a net lease. If the property owner doesn’t spend money or time on maintenance the tenant will be the one who suffers.
Advantages of the property owner:
- The property owner can get higher rent prices for a gross lease.
- He can cut costs in maintenance, by installing energy savings tools, or by simply doing maintenance at a low cost.
Disadvantages for the property owner:
- Full ownership of the property means, the property owner must fix unexpected costs or damages on the property.
- The property owner gets fixed rent, even though the costs go higher.
A gross lease can be a really good partnership between the two parties, now every contract can vary depending on what was negotiated, but having in mind the pros and the cons of the gross lease this can be a good thing to do in your area in the market for leasing a property long term, or if you already have a property that you want to lease for a long time. If you are looking for a different type of lease that’s more favorable, you can go with a net lease, a single net lease, a double net lease, or even a triple net lease.