Tenants Nigeria 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.
Leases in the real estate sector are classified into four types: absolute net lease, triple net lease, modified gross lease and full-service lease.
Before moving into a flat in Nigeria, tenants must sign a lease agreement with their landlords. While leave and licence agreements are common in residential real estate, tenants in commercial renting space must sign a lease. In terms of the real estate sector, these leases could be of various types.
Lease Varieties
Leases in the real estate sector can be broadly classified into four types stated earlier based on their structure: absolute net lease, triple net lease, modified gross lease, and full-service lease.
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.
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.
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.
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.
