Triple Net
The triple net (commonly spelled “NNN”) commercial lease creates a situation in which the lessee – tenant, in this case – is the only party responsible for any and all costs associated with that space. The costs typically attached to triple net leases are net real estate taxes, net building insurance, and net maintenance (CAM). These costs are, of course, in addition to the tenant’s base rent. This type of lease structure naturally favors the landlord; particularly those that like to sit back and do little more than collect rent. It should be noted that in addition to the actual expenses, it is also the responsibility of the tenant to make any arrangements regarding maintenance, improvements, etc.
Modified Net Lease
This lease type is essentially a triple net that has been negotiated and adjusted to (perhaps more fairly) suit both the landlord and tenant’s wishes. Although this may not be the ideal situation for the property owner, it often provides the extra push necessary to get the lessee’s tenancy. This commercial lease type often comes in the form of the double net lease (wherein the tenant would pay, in addition to base rent, taxes and insurance, excluding maintenance), or single net lease (often including only CAM in addition to base rent). The tenant may also negotiate a situation wherein the tenant may only have to pay a portion of the taxes, insurance, and maintenance).
Full Service
Often referred to as a “gross lease.” In this situation, the landlord is responsible for all building expenses. The rent paid, pays for the full service of the building – including CAM, taxes, insurance, etc. They may even cover utilities in some “modified gross leases.”
What to Look Out For
When performing your CRE searches, keep an eye on what is actually be offered. Asking prices, particularly for full service leases, will often be a little higher than NNN-leases. And based what has just been discussed, we know that this may not necessarily mean that our occupancy costs will be higher. What is often referred to as a “load factor” may be tacked on to cover the additional costs that your “base rent” in a full service lease is covering.
Looking at the other side of things, you want to make sure that you know everything that will be going into your occupancy costs when moving into a new location. Yes the asking rate for a new space may be low, but what may not be listed are all of the additional expenses for which you will be held responsible. Make sure you have an idea of what you will owe with estimates on previous annual taxes, monthly utility bills, etc.
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