A lease is a legally enforceable agreement that outlines the conditions under which one party agrees to rent an asset such as property from another party who retains ownership of the property. Typically, a lease agreement states that the owner of such property has allowed the other party to use the property for a specific period of time in exchange for some monetary considerations.
Under such lease arrangements, the tenant usually makes monthly payments to the owner with respect to his use of the owner property. There are many requirements that are factored into a lease agreement whereas the owner of the property stipulates a number of conditions including the rent amount and the tenant agree to the same. All such details are put in writing and agreed upon by both parties. A lease contract signed by both parties becomes legally binding.
Once you comprehend the functioning of a lease, it is easier to understand the concept of a gross lease. In a gross lease arrangement, the tenant agrees to pay a one-time rental fee to the owner of a property for the restricted use of the property for a specific period of time. Unlike ordinary lease arrangements, the rental payment in a gross lease agreement is made not as monthly premiums, but as s lump-sum.
Gross lease arrangements are fairly popular when it comes to commercial real estate. Properties like office buildings and retail spaces such as malls and supermarkets generally opt for gross lease arrangements. Under the provisions of a gross lease agreement, the owner of the property has to determine costs such as rent, insurance, taxes, maintenance, and other related expenses and present an estimated fee to the tenant. After this, the two parties jointly confer and negotiate the terms of the lease agreement including the costs. After due consideration, they reach the final terms which are beneficial and agreeable to both parties.
The conclusive amount determined by the parties should cover all the expenses that are associated with the ownership of the property. It should be noted that gross lease arrangements favor the tenants in some ways. Here, the tenants are fully aware of the estimated costs that they have to endure. However, any and all unanticipated expenses are to be met by the owner of the property. This allows the tenants to plan and allocate their finances accordingly.
