Lease Terminology - “$1.85 p/sf/NNN Lease” WHAT??? Or maybe “$1.85 p/sf/Modified Gross”. If reading this feels like you are reading a foreign language then you are in the right place. Our goal in this article is to explain Lease terminology, that way when you call a Commercial Real Estate Broker on a lease space to negotiate lease terms you will know what he/she is telling you when he says that the space is a NNN lease (Triple Net Lease).
To Start, there are a few different categories of leases:
- 1. Net Lease
- Gross LeaseModified
- Gross Lease
- Percentage Lease
We will walk you through the different leases one by one so you can understand lease terminology, and what type of lease you would be getting yourself into if agreed to said lease.
- Net Lease. There are three different types of net leases, with the most common being the NNN lease (triple net lease).
- NNN Lease: In this Lease the Tenant is responsible for their proportionate share of property taxes, insurance, operating expenses, and common area utilities. To start explaining this lease lets explain what common area utilities are. These are the utilities used to run the “common area” of the building. So let’s say the building is a large building, and in this building there is a stair case that is “common” to all Tenants, or there is a conference/waiting room that again is “common” to all Tenants. In a NNN lease spaces are broken down to a percentage of the building, then that percentage is taken from the entire utility cost, and the Tenant would pay his percentage of the “common” area. In a NNN Lease Tenants are also responsible for the costs associated with their own space such as personal property taxes, janitorial/cleaning service, and all utilities. In a NNN lease another term that is often heard is the CAMS (common area maintenance charges). The CAMS in a NNN Lease are divided among the tenants of the building based upon the Tenant’s square footage percentage. (Like I explained before). The Landlord is responsible for the integrity of the building in the NNN lease. Under the NNN Lease there is a Absolute NNN Lease sometimes called a Bond Lease. In this Lease the Tenant agrees to pay a lump sum base rent AS WELL as the terms in the NNN Lease. Under the Bond Lease there are NO legal defenses if a Tenant fails to comply, where in a NNN lease there are.
- NN Lease: The Double Net lease is a net lease where the Tenant pays a lump sum monthly as well as property taxes and property insurance… so no Maintenance under the NN Lease. The Landlord is responsible for all other expenses in this lease
- N Lease: The Single Net Lease the Tenant pays a monthly sum and just property taxes, all other expenses are the Landlords responsibility in this lease.
- Full Gross Lease: This lease is a full service lease where the Landlord pays the taxes, maintenance, insurance, and utilities. The Tenant then pays a Lump sum and those costs are generally figured in that amount.
- Modified Gross Lease: Modified gross leases are commonly utilized in multi-tenant office buildings. A modified gross lease is similar to a full gross lease, except depending on the terms, some of the base services are not included in the rent, (taxes, maintenance, insurance, and utilities). The most common Modified gross lease excludes maintenance, electrical, and some times janitorial.
- Percentage Lease: The percentage lease is used in retail services. In the Tenants lease there would be a provision where as the Landlord will receive a percent of the gross sales of the business after reaching an established dollar.
So… let’s break that down into a cheat sheet!
- NNN Lease Tenant pays for Property taxes, insurance, and CAMS.
- Full Gross Lease: Tenant pays an established rent that includes all expenses.
- Modified Gross Lease: Tenant pays an established rent, but it may not include some services. (Taxes, maintenance, insurance, and utilities).
- Percentage Lease: A percentage of the gross sales to be paid to the Landlord.
That is the Lease Terminology. I hope that this little education piece will help you in your next business adventure. If you have questions or would like to speak with us regarding Leasing or your next lease, please feel free to Contact Us.