The goal: Finding the perfect space for your business, with a lease that fits your needs and budget. (It can’t be that hard, right?)

The reality: Commercial real estate leases can be frustratingly complex.

Here’s an example:

Say you find two commercial properties that appear to have similar lease rates. You like them both, and each one seems like it could suit your needs. However, once you factor in operating expenses, taxes, insurance, utilities, and maintenance, the actual monthly cost of each lease turns out to look very different.

This is why it’s so important to understand how a commercial lease is structured … not simply the advertised price per square foot. To that end, let’s go over some common commercial real estate lease types and what you should evaluate when comparing properties for your business.

What's Included in a Commercial Lease?

When you lease a commercial property, there are a number of expenses that need to be accounted for. These costs could include:

• Base rent
• Property taxes
• Property insurance
• Common area maintenance (CAM)
• Utilities
• Repairs and maintenance
• Janitorial services
• Landscaping and snow removal
• Building management expenses

The structure of the lease agreement determines how these costs are divided between landlord and tenant. Before you sign any lease, make sure you understand how these costs are allocated.

Gross Lease: A More Predictable Payment

Under a gross lease, the tenant generally pays an agreed-upon rental amount while the landlord assumes responsibility for many of the property’s operating expenses.

Potential advantages of a gross lease include:

• Easier budgeting
• Fewer separate property-related expenses to manage
• More predictable occupancy costs

Things to consider with a gross lease:

• Exactly what's included can vary
• Operating expenses may already be incorporated into the rental rate
• Tenants still need to determine which expenses (such as utilities) are their responsibility

Real-life example: This South St. Paul office suite is being offered with a gross lease rate that includes utilities — a great example of why it’s important to pay attention to exactly what’s included before you sign!

Modified Gross Lease: Sharing the Expenses

A modified gross lease holds the middle ground between a traditional gross lease and a net lease. In a modified gross lease, the landlord and tenant divide operating expenses according to the terms negotiated in the lease.

For example, a tenant might pay base rent + utilities, while the landlord covers certain taxes, insurance, or common-area expenses.

The primary advantage of a modified gross lease is that it can provide flexibility, allowing you to tailor the terms of the agreement.

Real-life example: This Dakotah office/retail property in St. Paul is being offered at a modified gross rate plus utilities.

Net Leases: Base Rent + Additional Property Expenses

With a net lease, tenants generally pay base rent plus some portion of the property's operating expenses. This varies based on which type of net lease is in play.

Types of net leases include:

• Single Net (N): Tenant generally pays base rent + property taxes.

• Double Net (NN): Tenant generally pays base rent + property taxes + property insurance.

• Triple Net (NNN): Tenant generally pays base rent + property taxes + property insurance + common area maintenance or operating expenses.

Within these types of leases, specific responsibilities can vary by type of lease, particularly around repairs, utilities, structural components, and maintenance.

Real life example: This Lakeville office space is being offered with a net lease plus CAM.

More To Know About Triple Net (NNN) Leases

Triple net (NNN) leases are a lease type you’re likely to see often, so let’s discuss a little more about what to look for in a property offered with this type of commercial lease. With a NNN lease, the advertised base rent is only part of the occupancy cost.

When evaluating a NNN property, make sure to ask about:

• Current CAM estimates
• Utilities
• Property taxes
• Insurance expenses
• Historical operating expenses
• How expenses are allocated among tenants
• Which repairs are the responsibility of the landlord vs. tenant
• How annual increases are handled
• Capital improvement responsibilities
• Maintenance obligations

Gross vs. NNN: Don’t Compare Lease Rates at Face Value

As you can probably see already, you really can’t compare base lease rates alone when looking at different commercial properties. You have to consider the type of lease and what may or may not be included in the lease rate.

Here’s an example:

Property A is listed at $20/SF Gross.

Property B is offered at $15/SF NNN + additional operating expenses

Initially, Property B looks less expensive. However, without knowing what the additional operating expenses are, you can’t know what your total occupancy cost will ultimately be. It could end up being lower than Property A, but it could also end up being more expensive.

When deciding between properties with different commercial real estate lease types, make sure you compare the total estimated occupancy cost + lease terms + suitability of the space … rather than base rent alone.

Questions To Ask Before Signing a Commercial Lease

Before you sign on that dotted line, here are a few questions you should ask about a potential commercial property lease:

• What exactly is included in the quoted lease rate?
• Is the lease gross, modified gross, or net (and if net, which type)?
• What additional expenses will I be responsible for?
• What have CAM/operating expenses historically been?
• How frequently can rent or other expenses increase?
• Who handles repairs and maintenance?
• Who pays for major building repairs?
• Are utilities included?
• Who pays for tenant improvements?
• What is the lease term?
• Are renewal options available?
• Can the space accommodate future growth?
• What happens if my business needs change before the lease expires?

Understand the Lease Before You Choose the Space

The advertised lease rate only tells part of the story.

Understanding whether you're looking at a gross, modified gross, net, or triple net lease — and exactly which expenses you're responsible for — can help you establish a more accurate occupancy budget and compare properties more effectively.

But the best commercial real estate decision considers more than lease structure. Location, functionality, future growth, tenant improvements, total occupancy costs, and your long-term business goals all matter.

Don't Navigate the Commercial Property Space Alone

Commercial leasing can involve far more than finding an available property. A commercial real estate broker can help you:

• Identify suitable properties
• Compare available spaces
• Understand market conditions
• Evaluate lease structures
• Negotiate lease terms
• Coordinate due diligence
• Plan for tenant improvements
• Think through long-term space needs

At CERRON Commercial Properties, we offer tenant representation in addition to commercial property leasing, market evaluation, financial analysis, acquisition/disposition services, and other brokerage services.

And if your “perfect” space isn’t quite where you want it to be, our sister company, APPRO Development, can jump in to help with space planning, tenant build-outs, remodeling, design, budgeting, and construction.

Together, the teams at APPRO and CERRON help our clients develop, design, build, buy, lease, or sell commercial and industrial property — giving you a single source for your real estate and construction needs.

Looking for commercial space in Minnesota? Let the CERRON Commercial Properties team help you evaluate your options, understand the numbers, and find a space that works for your business today and into the future.

Note: Lease terminology and responsibilities can vary from one agreement to another. Review each lease carefully and consult appropriate real estate, legal, and financial professionals for guidance.