What is net rent?
Net rent is what a tenant would pay under a net lease. If you are under a net lease you pay an agreed amount at the beginning of the period. The amount you pay doesn’t cover any outgoings. So this means that you pay the leaser the agreed upon value and have to cover any outgoings. These outgoings include things like:
- maintenance and repairs
- real estate taxes
- insurance costs
- council rates
- water rates
- management fees
- strata levies
Thinking about signing a lease? Make sure you read our guide on what you need to know before going through with it.
Advantages of net rent
The main advantage of a net lease goes towards the owner of the property leasing it out. The advantage it gives is if outgoings increase in cost then the leasor doesn’t have to pay the increase. The tenant under a net rent is responsible for the outgoings. If the outgoings decrease in cost since the start of the lease it is advantageous for the tenant because now they have to pay less in outgoings.
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What is gross rent?
We talked about net leases where the tenant has to pay for the outgoings. Unlike net leases, under a gross lease the tenant has no other obligation to pay for things apart from the gross rent. This would obviously include the cost of the outgoings included in the gross rent along with the base price for the property.
Advantages of gross rent
For a tenant the main advantage of paying gross rent is that it limits the amount that the rent is going to cost because the tenant is not obligated to pay for outgoings. Because of this, the tenant will know exactly how much the rent will be and no surprise costs will surface. The landlord whilst suffering more if the costs of outgoings increase (as they have to absorb its increased cost) benefit from gross leases as it allows them to attract tenants.
If you want to read up more on the differences between the two and their advantages click here.
Which one is best for me?
Generally speaking if outgoings are going to remain constant, decrease, or the property is not going to require much upkeep, the cheaper net lease option would be ideal. If outgoings are going to most likely increase it may be better for a tenant to go with a gross lease to eliminate the obligation of paying for outgoings. There are a multitude of factors involved that influence whether a particular lease is best for you. These matters can be quite complex and we recommend seeking legal advice for all things related to leasing properties to ensure you get the most out of your lease agreement whether you are a prospective tenant or landlord.
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Conclusion
Net rent is the amount that a tenant pays under a net lease. Net leases involve just the cost of the premises without the outgoings included. The responsibility to pay for the outgoings falls on the tenant. Net leases can be advantageous for the landlord because if outgoings increase they do not have to incur any extra costs as the obligation to pay for outgoings rests on the tenant.
Gross rent is the opposite of net rent and is the amount a tenant pays under a gross lease. It includes the cost of the outgoings. Its advantageous for tenants at times because it caps the amount payable and therefore ensures no surprise costs arising. Landlords also profit off gross leases because it allows them to entice more tenants due to the advantage of capped costs.
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