What is NNN , NN, N lease? How do they differ from a Gross Lease?
Having International clients who were not familiar with the terminology of NNN (Net-Net-Net) lease prompted me to write a blog post to explain the differences between commercial leases. I could write a chapter not a blog post on each of these different lease types. Hence here is the abbreviated version:
Triple Net Lease , this type of lease clearly favors the Investor who does not like high risk , because the ‘Tenant’ has signed a long-term lease that could be ten or more years . The typical tenant is either leases an office building, or a top of the line Shopping Center as an example. Customarily is responsible for paying for, the taxes, insurance as well as the upkeep of the building. At the same time rent increases have been negotiated or should I say built into the contract.
So, how does this favor the Tenant? Since the Tenant is paying the costs that are customarily a Landlord’s responsibility, the rent charged is substantially lower than the going rate for similar properties. This is calculated in, to compensate for the Tenant handling the costs of the Building Insurance, the Building & Ground Maintenance Upkeep as well as the Taxes.
Now there is alternatively Net Lease and a Double Net Lease, the difference is, that in a Net Lease the Tenant Pays the Taxes in addition to the rent . Now in a double Net Lease the Tenant pays the Taxes and the Insurance as well. Neither case do they pay the Maintenance of the Building.
There are pros and cons to each of these types of lease, hence depending on the situation of the Tenant one has to consider what is more important and what is their risk tolerance. For example, cities and states tend to raise taxes on a consistent basis. There is also a concern of Insurance Carriers raising their fees as well.
So now the question is what is the alternative to these Leases? The answer is easy it is called a Gross Lease! Totally the opposite, nothing is paid by the tenant outside of the monthly lease and needless to say at a Premium!
Now if you are looking to Lease or Buy a Commercial Property please reach out to me directly!
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