A lease is the agreement you enter into when you rent an apartment or lease a car; the lease usually consists of a written contract that sets forth the amount of rent you will pay, the term during which you are responsible for paying it, and other terms. A long-term lease is simply a lease in which the agreement term is ten years or longer. A long-term lease is typically an option used for commercial real estate rentals - your apartment or home rental should not be subject to a long-term lease, unless under very special circumstances.
A long-term lease has certain advantages and disadvantages. Locking the rent into a stable price can be either good or bad. Rent generally trends upwards, so a long-term lease can potentially save you money by locking you into a set price for years to come. However, if the market crashes and rent drops suddenly, you'll still be responsible for the same amount of rent. Also, if you want to move your business to another location, you may need to choose between waiting out the lease, however long it may be, or breaking the lease and being severely penalized.
When leasing property, it's a good idea to know the language used, financial or lease-related terms, and what they mean. A long-term lease is only one of many different types of leases defined by the length of the lease term. A pure lease or true lease is typically a very short-term lease; it's considered a "real" lease because once it's over, it's over - the renter cannot renew the lease or purchase the property. The property covered by a pure lease is typically some kind of equipment.
Leases are also categorized in terms of the percentage of the property's life for which they are leased. A capital lease can be a purchase, such as with a rent-to-own lease, or simply a lease that spans the majority of the property's expected life; the opposite is an operating lease, in which the lease term is only a fraction of the property's life. For instance, most residential properties are rented under operating leases, as the lease terms are typically six months to a year long.
Some leases may take into account rises or falls in the market. A step-down lease contains a provision in the contract for decreases in rent, while a step-up lease contains a provision in the contract for increases in rent. These types of leases may be combined with other types of leases, such as the long-term lease, to ensure that the rent amount remains fair over time.
Different types of leases place different levels of responsibility on the landlord and tenant. The gross lease is the most common form of residential leased property, requiring that the landlord take care of any maintenance, property insurance, or taxes on the property. A double net lease requires the tenant to pay all insurance and taxes related to the use of the property, while the landlord is still responsible for any maintenance that needs to be done to the property. A triple net lease makes the tenant responsible for the maintenance as well as the insurance and taxes. In a net lease or closed-end lease, the tenant is responsible for virtually every expense associated with the property.
Another kind of lease is the sandwich lease, also known as "sub-letting." A sandwich lease occurs when the tenant leases the property to another individual. The tenant becomes both the lessee and the lessor, acting as a sort of "middle man."
Whether you want to lease property for business or personal needs, for a short time or an extended period, it's important to know the language used in the business. A long-term lease may or may not be right for you, and could easily be combined with other types of leases, so it's important to be familiar with all of the terms you could encounter.
