A lease is an agreement whereby the right to possession and enjoyment of real estate is transferred for a definite period of time. The person transferring the right is called the leasor and the pension obtaining the rights is called the lessee.
Leases may be classified according to term or according to payment.
9.1 CLASSIFICATION ACCORDING TO PAYMENT PROVISION
1. A Net Lease.
One which the lessee pays substantially all of the operations and maintenance cost.
2. A Flat Lease
Is one that calls for fixed periodic payments for the use of the property over term of the lease. It is usually for a short period of time.
3. A Step-Up Lease
It provides for a fixed payment to be adjusted periodically. The adjustment can be made either by new rentals taking effect after the passage of a specific period of time or by periodically adjusting the rent in accordance with a pre-determined formula. The increase is meant to cover appreciation of property as well as increase in insurance, taxes and maintenance cost.
4. Percentage Lease
This is one where the lessee is required to pay a fixed basic rent percentage of the sales volume. The percentage factor acts as an inflation hedge.
5. Escalator Lease:
This is a lease that calls for increases in taxes, insurance and operating costs to be paid by lessee.
6. A Sandwich Lease
This refers to a multiple lease situation in which the lessee intern subleases the property to a sub lessee for a higher sum than what is paid to a sub lessee. The sub lessee further subleases at a higher profit. For example assume that ‘A’, the original lesser leases to B and B executes a sublease to C and C then subleases to D. In this case, B is the sandwich leasor, and D is the Sandwich leasee.