A Guide for Michigan Business Owners
A commercial lease in Michigan can come in a variety of flavors. Each lease assigns costs and responsibilities differently. Understanding the differences between the differing types of commercials leases in Michigan is crucial to alleviating sticker-shock up front or, worse, budgetary shock after occupancy.
Knowing what it is you are looking at when considering a commercial lease is key to determining up front whether or not a lease is in your best interest, and within your budget.
Specifically, Michigan landlords typically use three main types of commercial leases. Each type affects your rent amount, repair duties, and total cost of occupancy.
The Three Types of Commercial Leases in Michigan
The three most common leases are:
- Triple Net Leases (NNN)
- Modified Gross Leases
- Full Service or Gross Leases
1. Triple Net Lease (NNN)
A triple net lease in Michigan makes the tenant responsible for most property costs. Tenants pay base rent plus taxes, insurance, and common area maintenance (CAM) charges.
This lease often requires tenants to handle repairs, maintenance, and even replacements of items like HVAC systems. While the base rent is lower, total occupancy costs can be unpredictable.
Retail, restaurant, and industrial tenants see this type of lease frequently. Landlords prefer NNN leases because they pass nearly all expenses to the tenant.
2. Modified Gross Lease
A modified gross lease splits costs between landlord and tenant. The tenant pays base rent plus a share of taxes, insurance, and CAM, as well as, in many cases, routine maintenance or annual inspection of HVAC and other mechanicals utilized within the rental premises.
Utilities may be billed directly to the tenant, but the landlord usually covers major repairs and capital replacements.
This structure is common in multi‑tenant office buildings. Tenants like it because costs are more predictable than under a triple net lease.
3. Full Service or Gross Lease
A full service lease is the simplest for tenants. You pay one fixed rent amount. The landlord covers taxes, insurance, maintenance, repairs, and often utilities.
Because the landlord takes on more risk, base rent is higher. However, you gain maximum cost predictability and fewer maintenance obligations.
Full service leases are common in larger office buildings and coworking spaces.
The table below shows how each lease assigns costs between landlord and tenant:
| Expense Responsibility | Triple Net (NNN) | Modified Gross | Full Service / Gross |
|---|---|---|---|
| Base Rent | Tenant | Tenant | Tenant |
| Property Taxes | Tenant | Shared (pro rata) | Landlord |
| Property Insurance | Tenant | Shared (pro rata) | Landlord |
| Common Area Maintenance (CAM) | Tenant | Shared (pro rata) | Landlord |
| Utilities | Tenant | Sometimes Tenant | Often Landlord |
| Repairs and Maintenance | Mostly Tenant | Negotiated | Landlord |
| HVAC Maintenance or Replacement | Usually Tenant | Negotiated | Landlord |
| Base Rent Level | Lowest | Moderate | Highest |
| Cost Predictability for Tenant | Lowest | Moderate | Highest |
How to Choose the Right Lease Type
The best lease depends on your business, location, and risk tolerance. Consider these factors:
- Budget predictability: A full service lease avoids surprise costs.
- Control over property: A triple net lease gives more control but adds financial risk.
- Negotiation leverage: In a soft market, landlords may agree to tenant‑friendly terms.
However, the devil is always in the details. Even a “standard” lease can shift big expenses to the tenant.
Why You Should Consult a Michigan Real Estate Attorney
A commercial lease can feel like a very one-side affair. “Sign or rent somewhere else,” may be the impression you get from a prospective landlord. However, this can be less true than it appears with an experienced Michigan real estate attorney on your side. Commercial leases are legally binding contracts, yes, but terms can be more negotiable than you might think. Particularly in a soft rental market.
A Livonia, Michigan real estate attorney will:
- Review the lease for hidden costs and unfair terms;
- Negotiate better maintenance, repair, and CAM provisions;
- Explain your total occupancy cost before you commit; and
- At least point out terms and provisions buried deep in 10-point font of which you should be aware before signing!
Need help with a commercial lease in Michigan?
At Noble Path Legal PLLC, we have assisted landlord and tenants in the restaurant and beverage services, entertainment, educational services, and retail spaces, as well as others, and can help you to make your commercial venture a success.
Click the button below to schedule an initial discussion to get started now.