Gross vs Nett Lease – Which One Is Better?

Welcome. My name is Rob and I’m a Commercial and Retail Property Manager with over 20 years experience.

In this video, I’m going to briefly talk about the difference between a Gross and Nett Lease, and as a Landlord what’s better for you.

I’m often asked what is better, a Gross or Nett Lease and majority of Landlords assume a Gross Lease is better for them, but not necessarily all the time.

Firstly, what is the difference between a Gross and Nett Lease? A Nett Lease is your rent plus outgoings, which gives you a figure that your Tenant will pay. 

The Gross Lease the Tenant pays a fixed rent with the outgoings usually built into it. For example, $1500 plus GST and Nett Lease they would pay $1000 plus $500 gives you the $1500 plus GST.

It’s true that in most cases Landlords are better off with a Nett Lease because if there is a spike in outgoings, they’re covered. 

So if the Strata levy go up or the Council rates go up by a significant amount it doesn’t matter because the outgoings are being covered by the Tenants. 

However, what happens if the annual increase in outgoings doesn’t go up. What happens if they stay flat or if they produce, then you would have been better off with the Gross rent because the Gross rent, at the very least, increases by, CPI of 3-4%, whatever you negotiate into your Lease.

So this really comes down to your property manager researching and understanding what the outgoings will do over the next few years if the council rates are going to go up by more than CPI. If the strata levy is going to go up for many shopping centres that we manage, for example, we forecast these outgoings for five years in advance sometimes, and we usually know if our outgoings are going to go up or reduce. Based on this, we will then negotiate a Gross or Nett Lease.

Now, if your property falls under the Retail Leases Act, it may be to your advantage as the Landlord to charge a Gross Lease because a Nett Lease calls on some of the outgoing to be audited.

 So the tip here would be to do your homework or ask your agent to do their homework to know exactly what the outgoings are doing. 

For more detailed information, please feel free to contact me, I’m happy to help.

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