The Triple Net Lease is the most commonly used lease in commercial real estate leasing transactions. Today I'm going to talk about the mysterious NNN Lease Agreement, and how it really isn't mysterious at all.
Though I deal almost daily with people inquiring about leasing commercial real estate (CRE) very seldom do I encounter a prospective tenant who actually understands what NNN means, much less how a NNN Lease actually works.
It's This Simple:
Why Keep it Separate? Because the charges are billed separately, it creates the illusion of a complicated arrangement, but it is not complex at all.
By comparison, the owner of a residential rental property will combine the 3 Nets into the monthly rent of a house, while the commercial owner will keep it separate. Either way, the tenant is paying them.
It makes sense from a tax point of view, for the owner of commercial real estate to keep the charges separate.
The annual taxes are figured and divided by the total square feet, as is the insurance. Maintenance is estimated but, although it is more fluid, proof of expenditures should be provided to the tenant(s).
Lease amounts are typically figured (and charged) by the square foot, as are NNN charges. In the graphic below, you can see how the rent on the strip center units are figured together with NNN charges:
So now you know that the mystery isn't really a mystery at all. I'm honestly not sure why it's not more commonly understood.
While we are talking about NNN leases, there is one more thing I'd like to remind you. Make sure you read the NNN Lease Agreement word for word (before you sign) so you are not caught by surprise at what you are financially responsible for. In addition to the NNN charges, it is standard for the tenant to take responsibility for repairs to the HVAC, plumbing, electrical and other critical components for the space they are occupying.
I don't want to end by complicating things, but there are such things as "single net" and "double net" leases (obviously they would only include one or two of the nets) but those types of leases are more commonly referred to in the industry, as Modified Gross Leases which can include a very wide array of different combinations. It is my personal opinion the industry should more often use single net and double net to describe the different arrangements, but very few CRE specialists do that.