Leasing a commercial property is the typical option for owners of dental and medical practices. Most doctors don’t have the resources or the inclination to purchase a building when first starting a practice.
In contrast to the permanence of buying property, leasing provides you with more options in terms of locations and flexibility to move to another space in the future if the present one is not conducive to your business. But not all lease agreements are the same; the triple net lease, gross lease, and modified gross lease are viable options.
Familiarize yourself with the advantages and disadvantages of each before you sign a lease contract.
Triple Net Lease
In a triple net lease agreement, in addition to the rental fee, the tenant is responsible for their share of the expenses required to maintain the property, including property taxes, insurance fees, and building maintenance expenses. The actual amount is based on the kind of building or unit you are leasing.
A triple net lease is popularly known as the “triple N.” The larger the business structure involved is, the more complicated this arrangement tends to become.
Here are the advantages and disadvantages of a triple net lease arrangement for doctor-tenants looking to lease a new space:
Pros and Cons for the Tenant
Pros:
- You are more likely to get a lower rental fee with a triple net lease in comparison to a gross lease or a modified gross lease agreement.
- You will only need minimal maintenance if the property is brand-new or in good condition.
- The landlord is more inclined to maintain the property if they can pass on the expenses to the tenants.
Cons:
- You will need to shoulder additional costs related to the property compared to other types of lease agreements.
- The additional costs may fluctuate leading to sticker shock or cash flow issues if you don’t understand your lease.
Gross Lease
A gross lease refers to a legal agreement where the tenant pays a fixed rental fee to the owner or landlord so the tenant leases space in a building. It is comparable to the leases of most residential properties.
The rental fee is inclusive of the costs involved in property ownership, such as the utilities, insurance, and taxes. The total charges are calculated by landlords to cover the operating costs of the property.
Here are the advantages and disadvantages of a gross lease for tenants involved in this agreement:
Pros and Cons for the Tenant
Pros:
- It is easy to plan and manage your lease budget because the rental fees are fixed.
- It frees you from the administrative duties related to the finances of the property so you can save time and effort.
Con:
- You may be required to pay a higher lease rate compared to other types of lease agreements.
- The landlord may not be incentivized to maintain the building, knowing that they have to shoulder the costs.
Modified Gross Lease
The modified gross lease is an agreement that combines the characteristics of a gross lease and a triple net lease. Here, both the landlord and tenant share the additional charges with a modified gross lease. The owner is typically responsible for the operating expenses, while the tenant is required to pay for costs that fall within their unit and/or share some of the costs of the building.
Here are the advantages and disadvantages of the modified gross lease for tenants:
Pros and Cons for the Tenant
Pros:
- It can save you money because the landlord covers the maintenance costs.
- It can save you time because it involves fewer maintenance responsibilities on your end.
Cons:
- Predicting your total rental budget is more challenging because the costs may fluctuate with a modified gross lease agreement.
Next Steps
As a dental or medical practitioner looking to secure a location, it can be a challenge to fully understand the details and implications of the specific lease agreement before you sign it. We can help you confidently and clearly negotiate the ideal arrangement that is appropriate for your practice so you can lease your property with peace of mind. Book an appointment with us or learn more about our services — we’d be happy to help.
