What is the most common industrial lease? Exploring the Most Common Industrial Lease: A Guide by Create Real Estate

Welcome to Create Real Estate, Sunshine, Victoria’s leading real estate agency. With a strong focus on commercial property and leases, we are dedicated to helping businesses find the perfect space for their needs. In this blog post, we will delve into industrial leases, shedding light on the most common types. Whether you’re a business owner seeking a new space or a curious individual interested in the commercial real estate market, this article will provide valuable insights. So, let’s dive in!

What is an Industrial Lease?

An industrial lease is a legally binding agreement between a landlord (property owner) and a tenant (business owner) that governs the rental of industrial properties. These properties are specifically designed for commercial and industrial activities, such as manufacturing, warehousing, distribution, and research and development. Industrial leases differ from commercial leases due to their unique requirements and specific provisions tailored to industrial operations.

The Most Common Industrial Lease Types:

Gross Lease:
One of the most prevalent types of industrial leases is the gross lease. In a gross lease, the tenant pays a fixed monthly rental amount, including the base rent and most property expenses, such as property taxes, insurance, and maintenance costs. This type of lease offers tenants simplicity and predictability, as they clearly understand their monthly financial obligations.

Create Real Estate provides a range of industrial properties available for lease under the gross lease arrangement. You can explore our listings on our website to find the perfect industrial space for your business.

Net Lease:
Another common type of industrial lease is the net lease. Unlike a gross lease, a net lease requires the tenant to pay the base rent and a portion of the property expenses. There are different variations of net leases, including single net leases (tenant pays property taxes), double net leases (tenant pays property taxes and insurance), and triple net leases (tenant pays property taxes, insurance, and maintenance costs). Net leases allow landlords and tenants to negotiate and allocate responsibilities based on their needs.

Create Real Estate understands the nuances of net leases and can assist you in finding industrial properties that align with your lease preferences. Visit our website to explore our comprehensive listings.

Modified Gross Lease:
The modified gross lease is a blend of gross and net lease structures. In a modified gross lease, the landlord and tenant share the property expenses, typically divided between them in a negotiated manner. The base rent remains fixed, while the tenant pays some expenses, such as utilities, maintenance, and insurance.

At Create Real Estate, a diverse range of industrial properties is available for lease under the modified gross lease terms. Our experienced agents will guide you through the negotiation process to ensure a fair and balanced lease agreement.

Percentage Lease:
While more commonly associated with retail properties, the percentage lease is occasionally utilised in industrial leasing as well. In a percentage lease, the tenant pays a base rent plus a percentage of their gross sales as additional rent. This type of lease is often favored by landlords in high-demand locations or where the tenant’s success is directly linked to the property’s performance.

Though less common in industrial leasing, Create Real Estate keeps a pulse on market trends and can assist you in exploring properties with percentage lease options. Contact our expert team or browse our website, to find suitable industrial spaces.

Understanding the different types of industrial leases is crucial when considering a commercial property for your business. Whether you’re seeking a gross lease, net lease, modified gross lease, or percentage lease, Create Real Estate is here to assist you every step. With our extensive knowledge of the Sunshine, Victoria, area and our dedication to providing exceptional service, we are committed to helping you find the ideal industrial space for your specific requirements. Visit our website or contact our experienced agents today, and let us make your industrial leasing journey seamless!

The Most Common Industrial Lease in Australia

When searching for an industrial property to lease in Australia, there are a few options. However, the most common type of industrial lease here is the triple net lease, also known as the net-net-net or NNN lease. In this blog post, we’ll discuss a triple net lease, its key features, advantages and disadvantages for tenants and landlords, and why it’s the most prevalent industrial lease in Australia.

What is a Triple Net Lease?

A triple net lease is a commercial lease where the tenant is responsible for paying property taxes, building insurance, and maintenance costs associated with the property in addition to rent and utilities. The “triple” in the name refers to the three operating expenses – property taxes, insurance, and maintenance – passed through to the tenant to handle directly.

With a triple-net lease, the base rent payment alone does not represent the total occupancy cost for the tenant. They must also budget for those three additional expenses, which are not included in the base rental rate per square foot. This helps provide the landlord with a steady, predictable income flow, not subject to variable property costs.

Key Features of a Triple Net Lease

There are a few key features that characterise most triple net leases in Australia and distinguish them from gross leases, where the base rent alone covers all costs:

• Base rent + payments for taxes, insurance, and maintenance: As mentioned, under a triple net lease, the tenant pays base rent to the landlord plus handles and pays all property taxes, building insurance, and maintenance directly.
• Longer lease terms: Triple net leases commonly have more extended initial periods of around 5-10 years to enhance financial stability for both tenant and landlord.
• Cost pass-throughs: The lease allows the landlord to pass through any increases in taxes, insurance, or maintenance costs for the tenant to handle. The base rent itself, however, remains fixed for the lease term.
• Tenant responsible for utilities: Tenants pay all utility costs, like gas, electricity, water, etc, directly.
• No landlord involvement: With all operating costs handled by the tenant, the landlord has limited participation in maintenance, repairs, or property management.
• Fewer landlord responsibilities: Since the tenant handles taxes, insurance, maintenance, etc., the landlord’s responsibilities are mostly limited to structural and roof repairs.
Advantages of Triple Net Leases

Triple net leases have remained prevalent in Australia because they offer some significant advantages for both tenants and landlords:

For tenants:

• Greater control: Tenants have greater control over maintenance costs and can minimise expenses through preventative maintenance.
• Cost deductions: All triple net expenses are deductible for the tenant, reducing net operating costs.
• Lower base rent: Base rent may be lower since it doesn’t include operating costs.
• Long-term stability: Longer lease terms provide occupancy cost stability over time.
For landlords:

• Steady, predictable income: Landlords receive stable rental income unaffected by variable operating costs.
• Minimal management: Landlords are not involved in maintenance or property management with NNN leases.
• Low expenses: Landlords have less overall expenses as tenants handle taxes, insurance, and maintenance.
• Pass through costs: Landlords can pass through any cost increases to the tenant.
• Lower leasing risks: Landlords have fewer risks for vacancies or operating cost spikes.
Disadvantages of Triple Net Leases

There are also some downsides of NNN leases to consider:

For tenants:

• Higher variable costs: Operating expenses fluctuate annually, making budgeting difficult.
• Expenses may be unpredictable: Some costs, like repairs, can arise unexpectedly.
• Less flexibility: With longer lease terms, it may be harder to relocate quickly if needed.
For landlords:

Variable income: If tenants can’t pay operating expenses, landlords’ income may be impacted.
No operating expense deductions: Landlords can’t deduct these taxes, insurance, or maintenance costs.
Less recourse for neglect: Landlords have limited recourse if the tenant needs to pay attention to maintenance or repairs.
Why Triple Net Leases Are Most Common

There are several essential reasons why triple net leases have become the most prevalent industrial lease structure in Australia:

• Risk mitigation for landlords: N leases provide substantial risk mitigation for landlords by passing along unpredictable operating costs.
• Alignment of incentives: They align landlord and tenant incentives to control costs at the property.
• Australia’s strong tenant protections: Landlord protections are weaker in Australia, so NNN leases transfer operating obligations to tenants.
• Stability amid rising expenses: Passing along rising taxes, insurance, and maintenance mitigates the risk of cost pressures.
• Preference of tenants: For consistency, many national tenants prefer N leases at multiple locations.
• Familiarity with brokers/agents: Brokers and leasing agents are the most experienced in negotiating triple-net lease terms.
With the many upsides for landlords and tenants, it’s no surprise that triple net leases have emerged as Australia’s clear favorite industrial lease structure.

Key Takeaways

If you’re looking to rent industrial, warehouse, flex, or commercial property in Australia, chances are you’ll be negotiating a triple-net lease. The key takeaways about this standard NNN lease are:

• Tenant pays base rent plus taxes, insurance, maintenance
• Longer lease term for stability
• Operating expenses pass through to the tenant
• Greater cost control for tenants, lower costs for landlords
• Downside is unpredictable expenses for tenants
• Prevalent in Australia due to mitigated risk and stability
• Ready to Start Your Industrial Property Search?

As commercial real estate experts active across Victoria, the team at Create Real Estate can guide you through finding the right industrial, office, retail, or commercial property to rent via our comprehensive listing database. If a triple net lease is right for your business, we can help negotiate N lease terms favorable to you as a tenant or landlord. Contact our professional brokers and property managers to learn more about our end-to-end commercial real estate services.