Why Real Estate Investors Should Avoid Gross Leases

Posted on February 19, 2020

In a full-service lease, also referred to as a gross lease, a tenant’s only financial responsibility is to pay rent for the space it leases. This leaves landlords with the responsibilities of paying all the costs to operate and maintain a property, including insurance and taxes, which can become a significant financial burden. Although landlords may attempt to account for these operating costs from the onset by building them into the rent they charge tenants, they cannot guarantee that their estimations of future expenses will turn out to be correct. After all, commercial leases typically extend over a long period of time, when repairs will be required for not only normal wear-and-tear but also more serious damages that can occur to unforeseeable events, including weather events, fire and flooding.

Instead, investors should look for commercial properties with net leases, for which tenants are responsible for all or a portion of the property’s operating expenses in addition to their rental payments. This will ensure landlords receive the benefits of cash flow from their investments without the risk of exposure to unpredictable future operating costs.

With offices in Miami, Orlando, New York City and Geneva, the team at Orion works with investors, developers, property owners and brokers through all phases of real estate transactions, from strategic planning and analysis to financing, negotiation, property management and disposition. For more information, call (305) 278-8400 or email info@orionmiami.com.