Understanding costs associated with a Commercial Lease
When entering into a Commercial Lease agreement, it is important to understand who is responsible to pay for things like council rates, land tax, building insurance, maintenance and similar other costs.
In this video John Gallagher from Argon Law explains the difference between a Gross Commercial lease and a Net Commercial Lease. The former being where the responsibility for these costs lies with the landlord. The latter is where the tenant is responsible for all outgoing costs.
Commercial Leases can fall between these two extremes, where both the landlord and the tenant share the costs related to outgoings. The important thing is to know what is defined. Particularly for commercial landlords, as costs not covered by the definitions of the lease cannot have reimbursement sort from the tenants.
Gross or Net Commercial Leases
Do you know the difference between Gross and Net leases for a Commercial Property?
When considering a lease of commercial premises, a key factor to take into account is, which party is to bear the cost of things like council rates, land tax, building insurance and maintenance.
Those costs are generally known as “outgoings” and the provisions of the lease should clearly detail how responsibility for payment of outgoings is shared between the landlord and the tenant.
I’m John Gallagher from Argon Law and I would like to tell you a little more about the different ways that responsibility for payment of outgoings can be dealt with in commercial leases.
Outgoings are generally charged directly to the owner of the premises by the relevant charging authority or service provider.
So, when a lease simply says nothing about the payment of outgoings, responsibility for the payment of outgoings remains with the landlord.
A lease which is silent like that, or which specifically provides that the landlord pays for all the outgoings, is often called a “gross lease”.
At the opposite end of the spectrum, a lease that specifically provides that the tenant must reimburse the landlord for all outgoings, is often called a “net lease”.
Now many leases fall somewhere in between those 2 extremes. For example, a lease could require that the tenant pays for rates, taxes and building insurance but that the ongoing costs of maintenance stay with the landlord.
Remember, if a particular cost is not covered by the definitions in the lease, it will generally mean that the landlord can’t seek reimbursement from the tenant.
So, if you have any questions about the interpretation of commercial leases or any other aspect of property law, don’t hesitate to contact us.
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This information is of a general nature only and is not to be relied on as legal advice. You need to seek your own legal advice about your own specific circumstances.
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