Triple Net Lease - What is NNN?

 

What is a Triple Net lease? As a commercial real estate broker with Commercial Properties, Inc., we get many tenants asking this question. To help understand a triple net lease, it’s important to know the definition as well as what costs are involved in the lease.

 

Wikipedia's definition of a Triple Net Lease:

 

Costs associated with most commercial real estate leases can be broken into three areas:

 

A triple net “Lease” is one in which the tenant pays all of the ongoing operating expenses. The landlord/owner charges an annual base rate plus a pass through cost of the three major nets. Other costs such as utilities, janitorial, internet, phone, etc. are not included in the lease rent.

 

In its purest form, a Triple Net Lease is where the tenant manages the property/space, doing everything from paying all the operating expenses, property taxes, utilities, insurance premiums, maintenance and interior repairs.

 

Here are the Three Main Lease Types:

 

Triple net lease: A triple net lease requires a tenant to pay a low lease rate while also paying other costs associated with operating and maintaining the space. In fact, with a triple net lease, the landlord will also pass on utility costs that are not separately metered, as well as all costs related to common area maintenance (CAM)

These so-called CAM charges include all expenses involved in maintaining common areas such as water/sewer, trash, restrooms, landscaping, parking lots, fire sprinklers, the roof or anything that all tenants share.

 

Modified Gross/ Modified Full Service Lease: Unlike a triple net lease, this agreement includes one, two or all three of the Nets as part of the base rent. It’s important not to assume what’s included and to ask your commercial broker what part of the nets have been included or modified. Typically a modified gross lease will include all the nets in the base rent.

 

Full Service Lease: This agreement is where the base rent covers all costs of taxes, insurance, maintenance along with the utilities and janitorial. The tenant pays a pre-determined lease rate each month and there are no pass-through expenses for operating expenses. A pure full service lease is the best of all worlds for a tenant, particularly for a medical office tenant. The tenant only has to write one check per month, and the amount only goes up incrementally over time with the normal progression of rent.

 

Monthly rent typically rises about 2 to 3% per year (although that’s negotiable). The tenant doesn’t have to worry about getting hit later for extra costs such as utilities, and the landlord handles all of the maintenance so the tenant can focus on growing their business.

 

 

 

 

The nice thing about a triple net lease is the potential savings you could have in the event the costs for the insurance, taxes, or CAM charges were to come down. In this case those savings are passed on to the tenant. Likewise, the downside of a triple net lease is that if expenses go up, those expenses as well are passed on to the tenant as a higher net cost.