Types of Long-Term Leases

This is a lease that you sign when you are renting for a period of time that is for ten years or more. Most of these leases are an option for commercial real estate like factories, office buildings, shopping centers, store rentals, but not for apartment rentals. There are also different categories of long-term leases. One thing to note with these types of leases is that the terms usually are in favor of the property owner and not the tenant.

When looking at this type of lease it is helpful to know lease-related terms so you will understand what type of lease you are signing. One example is:

• True or pure-this a very short-term lease and once it has expired you cannot purchase the property or renew the lease. This is type is mainly used for a piece of equipment and not the actual property.

There are also categories of long-term leases based on the percentage of the property’s life for the length they are released.

• Capital-this is a type of rent-to-own lease and spans the majority of the expected life of the property.

• Operating-this is for only a fraction of the life of the property and is generally used for residential rentals because the rental terms are usually six to twelve months in length.

Other categories place different levels of responsibilities on the tenant and property owner.

• Gross-it requires the property owner to take care of any taxes, insurance, and maintenance.

• Double net-this requires the tenant to pay all taxes and insurance but the landlord is responsible for the maintenance

• Triple net-the tenant is responsible for insurance, taxes, and maintenance.

• Close-end or net-the tenant is responsible for almost every expense that is associated with the rental property.

Another type of long-term lease is called the sandwich lease, which is when the tenant leases the rental property to someone else. The tenant becomes a “middle man,” being both the tenant and the renter. This type of lease is also known as sub-letting.

In addition to categories of long-term leases there are provisions that take into account the falls and rises in the real estate market.

• Step-down-this provision allows for a decrease in rent if the market falls

• Step-up-this provision allows for the rent to increase if the market goes up

Both of these provisions may be added to the lease to help ensure that the amount of rent is fair for both parties.

Before signing a long-term lease make sure that you read the contract thoroughly along with having an expert read it. It should also include what will happen if you need to break the lease early.