A gross lease is a type of commercial

lease A lease is a contractual arrangement calling for the user (referred to as the ''lessee'') to pay the owner (referred to as the ''lessor'') for the use of an asset. Property, buildings and vehicles are common assets that are leased. Industrial ...

where the tenant pays a flat rental amount, and the

landlord A landlord is the owner of property such as a house, apartment, condominium, land, or real estate that is rented or leased to an individual or business, known as a tenant (also called a ''lessee'' or ''renter''). The term landlord appli ...

pays for all operating expenses regularly incurred by the ownership, including taxes, electricity and water. Most

apartment An apartment (American English, Canadian English), flat (British English, Indian English, South African English), tenement (Scots English), or unit (Australian English) is a self-contained housing unit (a type of residential real estate) that ...

leases resemble gross leases. The term "gross lease" is distinguished from the term "

net lease In the field of commercial real estate, especially in the United States, a net lease requires the tenant to pay, in addition to rent, some or all of the property expenses that normally would be paid by the property owner (known as the "landlord" ...

Principle of operation

A gross lease allows the tenant to pay a fixed fee in exchange for exclusive use of the property. Landlords typically calculate a rent amount that reasonably covers the cost of rent, standard utilities, and other expected and day-to-day expenses. In a gross lease, the rent is primarily paid by the tenant. The landlord assumes the costs of maintaining the building. This includes parking lots, common areas, and utilities. Such an arrangement is attractive to tenants because it allows for predictable monthly payments. However, landlords may charge slightly higher rents to cover these costs. Gross lease is beneficial for some tenants, it allows tenants to accurately plan their living expenses or, in the case of renting to a business, business expenses. These leases are particularly advantageous to individuals with limited resources or businesses that seek to minimize variable costs to maximize profits. Companies can focus on growing their business without the complexities of net leases. Rent calculations can be made by analyzing or based on historical data for the property. The landlord and tenant can also agree on the amount and terms of the lease. A gross lease may cost the tenant more than if the property were used under a net lease. The valuation used to calculate the fixed rent may exceed the actual costs associated with the lease, resulting in a positive net benefit to the landlord and a negative benefit to the tenant.

Types of gross leases

Modified Gross (MG) In a modified gross lease, tenants typically pay a proportional share of operating expenses. Full-Service Gross (FSG) In a full service gross lease, outgoings (operating expenses) are paid by the landlord, but are imputed into the price of the lease.

References

* ''Principles and Practices of New Jersey Real Estate'' 6th Ed by Frank W. Kovats, DREI. Renting {{See also, Net lease