One of the most common areas of misunderstanding in commercial real estate leases is confusion over the inclusion of additional charges in a tenant’s lease. The trouble with different types of leases is often related to a mix-up of industry terminology. The most common misunderstood language refers to what charges are included in a Full-Service Gross, Modified Gross, and Net Lease.
Full-Service Gross Lease
Full-Service Gross Leases are common for smaller office and commercial space. Full-Service Gross Leases are similar to what tenants’ experience with apartment leases. Typically, with a Full-Service Gross Lease, the landlord pays all of the building’s taxes and operating expenses, which include common area maintenance, insurance, utilities, management, landscaping, snow removal and for office properties usually also janitorial, waste collection and recycling. However, in many cases, the tenant also pays separately for electricity for their “plugins,” broadband and telecommunications services. What is different for most Full-Service Gross Leases in commercial properties compared to apartment leases is that the tenant may also be responsible for their share of operating expenses and taxes over a negotiated base amount or base year stop.
Modified Gross Lease
Modified Gross Lease is typically found in smaller multi-tenant office, service and industrial properties. In the case of a Modified Gross Lease, the landlord usually pays the real estate taxes, insurance and exterior maintenance, including snow removal and landscaping. However, in practice, what is included in the Modified Gross Lease varies significantly, and some landlords try to cover almost everything beyond taxes and still try to quote the rent as being a Modified Gross Lease. Like with the Full-Service Gross Lease, in commercial properties the tenant is usually also responsible for their share of operating expenses and taxes over a negotiated base amount or base year stop.
Net Leases are the most common form of commercial leases and almost ubiquitous with larger, institutional quality office and industrial spaces as well as single-tenant office, commercial and industrial buildings. While with a Net Lease the landlord may still provide some building maintenance and management services, the tenant is obligated for their share of ALL of the building’s operating expenses and real estate taxes in much the same way as if they owned the property. Typically, the primary source of negotiation in net leases is which party will be responsible for capital improvements. Capital improvements may include the building’s roof and structure, parking lots and garages, mechanical systems and elevators. The market as to who pays for capital improvements and replacements varies based on the age and condition of the property, duration of the lease and other economics of the lease transaction. Although tenants are exposed to more potential expenses, the advantage of such contracts is that the tenant can often exert more control over expenditures by controlling the cost of their utilities, maintenance, and services. Vicariously landlords and their investment partners can quote much lower rentals because they do not share the risk of increased costs.
Still, there is a lot of variation as to how practitioners utilize these three terms in the commercial real estate industry. Consequently, the best advice I can give a prospective tenant is to ask their broker or property owner to detail exactly what charges the potential lease includes and excludes.
Along with a buildings location, amenities, and culture, an offices furniture plays a substantial role in determining a workforce’s productivity. Offices are shifting toward ergonomic chairs, standing desks and balance ball chairs office designers a looking to maximize the well-being of the modern office worker. Moreover, today’s top firms are using discoveries in social science to boost productivity. As the debate rages, what is certain is choosing between benching and cubicles is a challenging task. Although it’s impossible to claim that one is universally superior, we will address the positive and negative effects of each choice.
Unlike the traditional private office layout of an earlier era, Cubicles were a cost-conscious alternative to the conventional office. In the 80s and 90s cubicles became a universal solution to provide small offices in a larger workspace.
The primary advantage of cubicles is they provide private space for workers without more expensive and isolating traditional offices. Most social scientists agree that cubical workers have just enough privacy to stay focused while feeling connected with the rest of their co-workers. Workforce studies seem to agree that productivity can decrease when employees feel a deprived of privacy and feel to exposed. Still, although cubical walls provide a sensation of privacy, for the most part, employees remain heavily exposed to their colleges and the gaze of management.
Besides merely the issue of privacy, cubicle panel space allows workers to personalize their workspace, without allowing for clutter. Data has shown that enabling workers the ability to customize their workspace gives employees a greater sense of belonging and improves employee satisfaction. Consequently, for some businesses models cubicles offer greater return through increased privacy and employee personalization for minimal workspace cost.
Benching tends to be found in office space that tends to be more open then even cubicles. Benching offers a floorplan where the office space is lined with a bench like desks designed to accommodate multiple workers. The concept is based on the principle that desks are consolidated to serve as workstations for multiple workers.
The main advantage of benching is to save office space and thus reduce cost. By removing paneling to divide workspace, benching opens up office space making an area more open and less cluttered. As a result, benching provides a collaborative environment where teams of workers are grouped together. With no barriers, team members can easily exchange ideas and consult one another instantaneously on projects. Proponents of benching suggest that working in the open-space system makes it easier to exchange ideas and create informally across multiple office disciplines.
Although the amount of privacy required in an office is based on the preferences and requirements of each unique workforce, some detractors feel that benching does not provide enough privacy. Based on the business and the amount of teamwork employer seeks to foster, benching may or may not be the ideal choice.
Both bench and cubicle seating offer businesses unique advantages. The majority of today’s companies use the bench, cubicle or a diversified seating model. As no model is perfect, ask your broker or property manager for advice. An experienced broker or management team should be able to set you up with an experienced space planer to maximize the productivity of your space.
We have all heard it, the standard phrase in real estate is “Location, Location, Location!” Although a site is often critical, no property is a magic bullet for corporate success. For some businesses and ideal location can make or break a company, while for other business amenities, price and other factors determine organizational success. The best place for an individual business depends on a variety of factors. Ultimately, the decisive factor in understanding your company’s ideal location is dependent on the type of business you’re in. Although today’s office, industrial, and retail developments are moving towards mixed and creative configurations, these are the five basic property types you may encounter on your search.
Startups and entrepreneurs that seek extremely low budget workspace sometimes find the home as an alternative to the traditional office, industrial, or retail space. Although some start at home with no intention of moving, a home-based business from the garage, home bedroom or kitchen table has advantages but also significant downsides. Although it is cost-effective, the growth of a home-based business is stunted by the size of the home. Moreover, home-based businesses are usually inadequate for companies that regularly meet with clients or for accommodating the needs of employees who live outside the home.
Retail space includes a wide range of sub-categories including downtown shopping districts, enclosed malls, strip shopping centers, free-standing buildings, and mixed-use facilities. For client-facing retail businesses, finding the perfect space is highly dependent on a business’s clients and product; thus, it is essential that client-facing retail uses to find a property tailored to their individual market.
A growing trend in food, beverage, and service industries in mobile business space. Particularly with the rise of the gig economy some businesses are catering to clients flexibly from a car, van, or truck. Although
Most commonly commercial office space and business parks are designed to serve corporations that do not require significant pedestrian traffic; instead, commercial offices tend to offer amenities, privacy, and workspaces designed to maximize productivity. Within the category of office space, workspaces range from a few hundred square feet to vast corporate campuses for designed for multinational corporate headquarters.
For heavy distribution or manufacturing businesses, most municipalities require your business be located in an industrial workspace. Industrial spaces include light industrial parks with smaller manufacturers and mixed uses along with heavy industrial areas which tend to offer weaker industrial use regulations and a different range of amenities. When deciding between industrial spaces, it’s critical to inspect and understand the various infrastructure, zoning, and regulatory offerings of each individual property.
In the end, the crucial question to finding the right workspace for a company is a site based on the business’s individual requirements. Even though workspaces are increasingly flexible, understanding how your particular business’s needs shape the ideal workspace location is critical to finding a successful location.