There’s more than one way to lease a commercial property. But how do you know if signing a triple net commercial lease agreement will be more beneficial to your aims than signing a gross lease agreement? The first step is to understand what terms like gross, single net, double net, and triple net mean.
The Difference Between Gross and Net Commercial Lease
In a typical commercial gross lease, the landlord assumes the responsibility of paying for all of the building’s maintenance and even pays for insurance and property taxes. The cost of these services is usually reflected in an increased monthly lease fee. During commercial real estate negotiations, however, it’s common for the tenant to accept reasonable caps on the landlord’s exposure to the tenant’s use of these services and utilities. Often the parties will agree to a “base year” estimated expense, then the landlord invoices the tenant for any overage.
In a net commercial lease, the leasing tenant assumes some of the costs of normal usage. This can include paying for typical expenses like utilities, insurance, and property taxes, and can also include additional expenses like trash collection and janitorial upkeep.
The 3 Types of Net Lease
The costs that a lessee assumes under the three different types of net lease can vary but typically break down like this.
Net Commercial Lease.
The tenant agrees to pay the property taxes in addition to – but separately from – the monthly lease amount.
Net, Net Commercial Lease.
Under the net, net commercial lease, building insurance is also paid by the tenant in addition to the property taxes.
Triple Net Commercial Lease (also known as Net-Net-Net or NNN).
This type of agreement results in the assumption of payment for maintenance and utilities, in addition to property taxes and insurance, by the tenant.
The Complexities of the (Net), (Net, Net), or Triple Net Commercial Lease Agreement
The definitions outlined above for the net, net-net, and triple net commercial lease agreement are rarely written in stone. The fact is, the overwhelming majority of tenants pay their proportionate share of taxes, insurance, and common area maintenance (frequently referred to as TICAM). Sometimes, a landlord will agree to lower TICAM assessments if having a certain tenant will attract other businesses, but this is usually only offered to retail establishments and is rarely seen in typical office leases. Most of the time, it’s the timing of TICAM assessments and the sharing of the cost of these expenses with other tenants that will work to a lessee’s greatest benefit.
Careful negotiation of who pays what can play favorably for both parties, but is often dependent on the strong guiding hand of a commercial real estate broker to lead talks to an amicable and mutually beneficial conclusion. In the absence of an experienced negotiator, it’s critical for prospective tenants to familiarize themselves with certain key methods necessary to achieving a successful commercial real estate negotiation. For free advice on how to do this, visit the Cardinal Partners website and review the various available resources on negotiation.