Actual - Real Estate

A question I get asked fairly frequently from business owners is what does it mean for a lease to be "gross"? This is a common term in commercial real estate. It doesn't mean

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

t that your lease smells funny, has stuff oozing out of it, or anything like that...

A pretty good textbook definition is that a gross lease is one in which the landlord pay

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

all expenses associated with the ownership of the property including maintenance, taxes, and insurance.

Basically, with a gross lease a tenant pays their monthly rent and t

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

he landlord pays all associated expenses with the property. This arrangement is usually found in office buildings and buildings with many small tenants. It's a simple way of

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

alculating a rental rate.

The "opposite" (for lack of a better word) of a gross lease is a triple net lease. What is that all about? Three nets???

Basically a textbook defi

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

nition of a triple net lease is one in which the tenant pays rent to the landlord, as well as a share of the taxes, maintenance, and insurance expenses based on the tenant's

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

se of the property.

In this example, a tenant would have a fixed rent and on top of that he would pay a share of all expenses of the property (the nets). If the taxes go up,

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

the tenant kicks in a little more, if the taxes go down, the tenants obligation to pay goes down. The amount of the expenses a tenant must pay is based on the amount of spac

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

they occupy in a building. If a tenant occupies 1,000 SF of a 5,000 SF building, he would be responsible for 20% of all of the taxes, insurance, and maintenance costs such a

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

s snow removal and landscaping.

This type of lease is commonly seen in retail properties and industrial properties or in properties where there is only one company occupying

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

the entire property. It is also becoming more and more popular and is commonly seen in newer buildings.

Is one better than the other??? There are arguments on both sides I g

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

ess.

If you have a gross lease, you don't have to worry about drastic increases in property taxes or insurance because your rent is fixed and the landlord pays the taxes and

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

insurance. With a gross lease there is usually some sort of pre-determined annual increase built into the lease to cover possible expense increases but because that is all n

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

gotiated up front, you can budget for the annual increases. Now if the taxes go down (yeah right!) then the landlord benefits because he is still collecting the same amount o

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

f money and his expenses just went down.

With a triple net lease, the expenses are usually reviewed every 6 months and if there has been an increase in taxes or insurance, t

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

at increase is passed along to the tenant and they may not have even known that taxes were going to go up. With a triple net lease, if any expenses go down, the amount the te

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

nant pays goes down accordingly so the tenant is able to take advantage of the decrease.

There are several variations of both types of lease includind modified gross leases,

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

double net leases, graduated leases, single net leases...the list goes on but the "Gross Lease" and the "Triple Net Lease" are the two you are most likely to come across.

Ju

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

st remember that with any commercial real estate lease or any lease for that matter, you should consult a real estate professional and also an attorney. These people are expe

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

ts at what they do.

So the next time you hear somebody talking about how gross their lease is, you won't be caught with your jaw down wondering what they are talking about..

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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