So, you’ve decided it makes the most financial sense for you to lease space for your practice. Kudos for taking the time to arrive at this decision. Do you know which commercial lease type you want? There are three major types, which we will discuss in this column. (See “Lease Pitfalls,” below.)

1 GROSS LEASE

A gross lease, also called a full-service lease, requires the tenant to pay the rent on the commercial space, while the landlord covers all other costs. For the tenant, this is a preferred lease because it fixes the rent. In my experience, however, this lease type is becoming rare. The reason: Most landlords want to protect their investment by passing along the maintenance cost, among other fees, to the tenant.

2 NET LEASE

Net leases can be complex, yet they are preferred by most commercial property owners for reasons you’ll understand when I break them down into their subsets. A caveat: I am only going to cover the main points in these leases.

• Single net lease: The tenant pays all or portions of property taxes, in addition to the base rent.
• Double net lease: The tenant pays all or part of the property taxes and insurance, in addition to the base rent.
• Triple net lease: The tenant pays all or part of the property taxes and insurance, in addition to the base rent. Additionally, the tenant pays common area maintenance fees, which include other expenses associated with the property (garbage, landscaping, etc.) on a prorated basis, depending on the occupied square footage.
• Absolute triple net lease. The tenant essentially pays all expenses associated with the property, in addition to the base rent.

LEASE PITFALLS

Build-out clause

 

Renewal terms and conditions

 

 

Restrictions on hours of operation

 

 

Right of first refusal for additional space or to purchase the building

 

 

Parking is a major one that is often overlooked and can be critical to the success of your business.

 

 

Signage requirements and availability are also critical.

 

 

Indemnification clause

 

 

Sublease allowances and or restrictions

 

 

Non-compete clauses for similar businesses in the same space

 

 

Termination rights

 

 

Landlord consent and recapture

 

 

Defaulting landlord (Estoppel protection)

 

3 PERCENTAGE LEASE

A percentage lease requires the tenant to pay a base rent each month, plus a percentage of their monthly sales. This lease type may benefit a new practice that, as a result, does not yet have substantial sales. However, as the practice becomes profitable, the tenant may end up paying above market rates. As these leases generally include a minimum base, I always advocate for a maximum cap.

NEGOTIATE

When leasing space, it is not uncommon to negotiate directly with the landlord. As this can be complicated, engage a real estate attorney or commercial real estate broker when negotiating a lease. Brokers are good at negotiating too. You want someone with experience guiding your negotiations, while precluding critical and costly mistakes. OM

Disclaimer: The information in this article is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. The information contained in this article is not legal advice, and it is not intended to be a substitute for legal counsel on any subject matter. No reader of this article should act or refrain from acting on the basis of any information included in, or accessible through, this article without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country, or other appropriate licensing jurisdiction.

DR. GILBERT-SPEAR is the founder and director of The Visual Performance Center and is a consultant and speaker with various eye care companies. She is also a partner at Pacific Apex Law Group, LLP, where she focuses her practice on Health Care and Life Sciences.