Tenants in India need to sign a lease deed with their landlords before entering a flat. While leave and licence agreements are common in the residential real estate space, tenants need to sign a lease in case of commercial renting space. These leases could be of various types, as far as the real estate sector is concerned.
See also: What is a leave and license agreement?
Types of leases
In the real estate sector, types of leases can be broadly put into the following four categories, depending on its structure: absolute net lease, triple net lease, modified gross lease and full-service lease.
See also: Lease vs rent: Key differences
Types of leases: Triple net lease
Common in the commercial renting space, a triple net lease demands a tenant to pay the main expenses of the property (such as property tax, insurance and maintenance), apart from paying rent and utility bills. A steady and predictable income stream for landlords, triple net lease is also known as the NNN lease. (In case of single net lease, a tenant needs to pay property tax; in a double net lease, he would pay property tax and insurance; in a triple net lease, he would pay property tax, insurance and maintenance.)
Also used for freestanding commercial buildings, the triple net lease is usually for a single tenant.
Know all about HRA exemption on rent paid
Types of leases: Absolute net lease
An absolute net lease puts the responsibility of paying maintenance, insurance and local taxes on tenants while also making them responsible for the building structure. An absolute net lease, sometimes known as bondable lease, makes a landlord free from all financial obligations. A tenant gets benefits in the form of lower monthly rental in such case. An absolute net lease is drafted when a landlord constructs a custom-made commercial renting space for a single tenant, keeping in view every need of his tenant. Usually, large businesses enter into such kind of lease deeds.
An absolute net lease is a variation of the NNN lease.
See also: Police verification for rent agreement: is it must?
Types of leases: Modified gross lease
In a modified gross lease, a landlord shoulders the burden of insurance, property tax and maintenance while a tenant pays utility bills. The roof and other structural aspects of a building are the owner’s responsibility. In this case, the monthly rental is higher compared to an absolute net lease or NNN lease. Modified gross lease is common in office space leasing where the number of tenants is high.
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Types of leases: Full-service lease
A lease agreement that requires a landlord to pay all operating costs – property tax, maintenance, insurance, and janitorial costs – is known as a full-service lease, also referred as a gross lease. However, tenants might be asked to pay for certain utility bills like telephone and internet bills. Common in large multi-tenant commercial units, full-service leases require a tenant to pay high rents.
Also read how to claims tax deduction under 80GG is HRA is not part of your salary.
An alumna of the Indian Institute of Mass Communication, Dhenkanal, Sunita Mishra brings over 16 years of expertise to the fields of legal matters, financial insights, and property market trends. Recognised for her ability to elucidate complex topics, her articles serve as a go-to resource for home buyers navigating intricate subjects. Through her extensive career, she has been associated with esteemed organisations like the Financial Express, Hindustan Times, Network18, All India Radio, and Business Standard.
In addition to her professional accomplishments, Sunita holds an MA degree in Sanskrit, with a specialisation in Indian Philosophy, from Delhi University. Outside of her work schedule, she likes to unwind by practising Yoga, and pursues her passion for travel.
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