An NNN lease is the most common type of commercial lease and is commonly called a triple net lease. On an NNN lease, tenants pay additional expenses in addition to the lease fee, to the landlord or lessor. The NNN fees includes property taxes, property insurance and common area maintenance for a building (CAM).
- 1 What does NNN mean in commercial real estate?
- 2 How is NNN calculated?
- 3 What is $25 NNN?
- 4 What is $20 NNN?
- 5 Is NNN monthly or yearly?
- 6 How much is triple net usually?
- 7 What NNN includes?
- 8 Can you negotiate NNN?
- 9 What does 12 NNN mean?
- 10 Is Triple Net negotiable?
- 11 What does $20.00 SF yr mean?
- 12 Does Triple Net include utilities?
- 13 What is TI allowance in commercial real estate?
- 14 How do I calculate triple net?
- 15 How do you calculate commercial rent?
- 16 What’s the Difference Between Single, Double, and Triple Net Leases?
- 17 Single Net Leases
- 18 Double Net Leases
- 19 Triple Net Leases
- 20 Pros of Triple Net Leases
- 21 Cons of Triple Net Leases
- 22 Triple Net Lease Example
- 23 Special Considerations
- 24 Triple Net Lease FAQs
- 25 The Bottom Line
- 26 An NNN Lease Versus a Gross Lease: What’s the difference?
- 27 What Is a Triple Net (NNN) Lease and What’s Included in It?
- 28 What Is a Triple Net (NNN) Lease?
- 29 What Does a Triple Net Rental Rate Include?
- 30 Other Types of Lease Structures
- 31 What’s Next?
- 32 What the Heck Does NNN Mean? Commercial Real Estate
- 33 What Does NNN Mean?
- 34 What Do NNN Expenses Include?
- 35 Are There Any Other Expenses to Consider?
- 36 Commercial Real Estate Terminology
- 37 Need Help?
- 38 What You Should Know About The Triple Net (NNN) Lease
- 39 What is a Triple Net (NNN) Lease?
- 40 The Spectrum of Commercial Real Estate Leases
- 41 What the NNN Lease Does Not Include
- 42 Triple Net Lease Investment Risks
- 43 Assessing Tenant Credit Risk in a Triple Net Lease
- 44 Triple Net Lease Example
- 45 Conclusion
- 46 What Does ‘NNN’ Mean in Commercial Real Estate?
- 47 What does NNN mean?
- 48 How does an NNN lease differ from other types of commercial real estate leases?
- 49 What are the benefits of an NNN lease?
- 50 The bottom line
- 51 What Does ‘NNN Lease / Triple Net Lease’ Mean?
- 52 Understanding Commercial Real Estate Leases and Clauses
- 53 WHAT IS A NNN LEASE / TRIPLE NET LEASE?
- 54 Why Triple Net Leases Are Popular
- 55 Triple Net Lease: Risks and Benefits
- 56 Confidential Conversations
What does NNN mean in commercial real estate?
A triple net lease (triple-net or NNN) is a lease agreement on a property whereby the tenant or lessee promises to pay all the expenses of the property, including real estate taxes, building insurance, and maintenance. These expenses are in addition to the cost of rent and utilities.
How is NNN calculated?
To determine the triple net lease amount for each renter, add those monthly expenses and the monthly rental per square foot charges and multiply it by the number of square feet a renter is leasing. That is the monthly triple net lease amount.
What is $25 NNN?
NNN stands for Triple Net rent. In this type of commercial real estate rent, you pay the amount listed and you also have pay additional costs (usually Operating Expenses) on top of that. For example: say the Office Space listing you’re interested in says the rent is $24.00 NNN per sqft/year.
What is $20 NNN?
Lease Rate: $20.00 /SF NNN (Estimated NNN = $3.25/SF), meaning the base rental rate is $20.00 per square foot per year and the property expenses, which include property taxes and insurance, are estimated to be $3.25 per square foot per year, though they can fluctuate from year to year.
Is NNN monthly or yearly?
Example of Calculating Monthly Rent in a NNN Lease The estimated operating expenses (aka NNN) are $10 per square foot per year. The total yearly rent you would pay equals $40 sf per year. So if you are leasing 3,000 sf then your yearly rent would be $120,000 or $10,000 per month.
How much is triple net usually?
The triple net lease amount is $8 per sq. ft. The base rent amount calculates to be $50,000 a year ($20 x 2,500) or about $4,166 a month. The triple net amount calculates to be $20,000 a year ($8 x 2,500) or about $1,666 a month.
What NNN includes?
On an NNN lease, tenants pay additional expenses in addition to the lease fee, to the landlord or lessor. The NNN fees includes property taxes, property insurance and common area maintenance for a building (CAM).
Can you negotiate NNN?
The tenant’s ability to negotiate around a NNN leases is typically limited by the particular geographic area. In many areas, it is common practice to require a NNN lease if a tenant wants to lease commercial property. There are many areas where a tenant can negotiate a NNN lease to make it more favorable.
What does 12 NNN mean?
Commercial spaces may be advertised as “$12/psf NNN” meaning $12 per square foot is the base rent and the NNN expenses will be in addition to that. CAM, or common area maintenance, is one of the three NNN Expenses that commercial tenants pay for as additional rent.
Is Triple Net negotiable?
Just because it is labeled as a triple net lease, does not mean that you cannot bargain and negotiate for different terms that better suit your needs. For instance, the parties to a triple net lease can negotiate for “caps” on certain expenses, such as maintenance repairs or property taxes.
What does $20.00 SF yr mean?
In the commercial leasing industry, $/SF/year or $/SF/yr means the rent per square foot per year. This would be calculated as $20 x 1000 square feet = $20,000 total (this is the cost for the total year).
Does Triple Net include utilities?
Tenants in a triple net lease agreement must pay utility expenses that keep the property running. This includes electricity, water, gas, sewage, trash and recycling, cable, phone, and internet. Major repairs to utilities may fall under the responsibility of the landlord, but this depends on the lease agreement.
What is TI allowance in commercial real estate?
What is a TI Allowance? A tenant improvement allowance is money given from a landlord to a tenant to help pay for the improvements to an office space, or sometimes other expenses associated with moving into a new space. A tenant improvement allowance is a number generally referred to in dollars per square foot.
How do I calculate triple net?
Triple net leases are calculated by adding the yearly taxes on the property and the insurance for the space together and dividing that amount by the building total rental square footage. The process of calculating a triple net lease is simplified when an entire building is leased to one tenant.
How do you calculate commercial rent?
How to Calculate Commercial Rent:
- Take Your Price Per Square Foot.
- Multiply That by Your Total Square Footage.
- That Gives You Your Total Annual Rent.
- Divide by Twelve for Monthly Rent.
What’s the Difference Between Single, Double, and Triple Net Leases?
A triple net lease (NNN) is a type of business lease that helps landlords decrease the risk associated with commercial leasing. A triple net lease is one of three forms of net leases, which are a type of real estate contract in which a tenant is responsible for one or more extra expenditures in addition to the rent. Net leases, which often include property taxes, property insurance premiums, and maintenance costs, are frequently utilized in commercial real estate transactions. Single net leases and double net leases are two more forms of net leases that are available in addition to triple net leases.
In a double net lease, the tenant is responsible for both the rent and the property taxes, as well as the insurance costs.
Rents are often cheaper with net leases than they are with standard leases since the greater the amount of expenditures a tenant must shoulder, the lower the base rent a landlord may charge.
Single Net Leases
Single net leases, often known as net leases or “N” leases, are less popular in the rental industry than multi-unit net leases, which are more common. In this type of lease, the landlord transfers only a minimum level of risk to the tenant, who is also responsible for paying the property taxes. Therefore, the landlord is responsible for any additional expenses (such as insurance, maintenance and repairs, as well as electricity and water). The landlord is also liable for any maintenance and/or repairs that may be required within the property over the length of the lease.
However, increasing the rental payment does not relieve the landlord of his or her obligation for keeping these bills current.
Fines and/or other fees may be imposed as a result of this.
Their preference is for payments to be routed via them so that they may be assured that the taxes are paid on time and in the proper amount.
Double Net Leases
Double net leases, often known as net-net leases or “NN” leases, are very common in the commercial real estate industry. In this type of lease, the tenant is responsible for paying the property taxes and insurance fees in addition to the rent. Because of the additional expenditures that the tenant must face, the base rent (which is the amount payable for the space itself) is often lower. However, all maintenance expenditures remain the responsibility of the landlord, who is responsible for making the necessary payments immediately.
Renters often have the burden of paying taxes and insurance charges that are proportionate to the quantity of space rented.
Despite the fact that these payments are included in the tenant’s lease, the landlord’s name appears on the tax and insurance statement, indicating that they are ultimately accountable.
By requiring renters to pay these charges directly to the landlord, the landlord may prevent the complications that might arise from tenants making late or missing payments, which can result in the imposition of additional penalties.
Triple Net Leases
The triple netlease relieves the landlord of the greatest amount of risk compared to any other net lease. This implies that, in addition to the rent, property taxes, and insurance payments, the renter is also responsible for the expenses of structural upkeep and repairs to the building. A reduced base rent is usually charged by a landlord since these extra expenditures are passed on to the renter. When maintenance expenditures exceed expectations, renters with triple net leases commonly seek to break out of their leases or negotiate rent discounts with their landlords.
The term “triple net lease” refers to a lease that cannot be cancelled before the lease’s expiration date.
It is possible that renters will attempt to get out of a costly triple net lease, hence landlords may opt to utilize a bondable net lease.
Furthermore, they may be held liable for any damages to the property that are not covered by the insurance policy.
- A net lease is a type of real estate contract in which the tenant is responsible for one or more additional costs. During a single net lease, the tenant is responsible for paying a lesser base rent as well as property taxes. Furthermore, property taxes and insurance premiums are included in double net leases, in addition to the base rent
- Additional expenditures such as property taxes, insurance, and maintenance are incorporated into a triple net lease in addition to the base rent. Because of the significant expenses connected with triple net leases, tenants may seek to get out of them, which is why landlords typically utilize a bondable net lease.
Watch Now: What Is a Triple Net Lease (NNN)?
Triple net leases provide a number of distinct advantages to both investors and renters. The limits of this sort of business lease, on the other hand, should be taken into consideration by both parties before engaging into a long-term triple net leasing arrangement. Although renters in a triple net lease often take greater financial responsibility than tenants in other forms of leases, triple net leases can be advantageous to tenants in a variety of ways.
Pros of Triple Net Leases
Triple net leases are agreements between a property owner and a tenant in which the tenant pays for the property’s property taxes, insurance premiums, as well as the upkeep and repairs of the building or space, in addition to the monthly rental charge for the property or space.
The majority of triple net lease arrangements are designed to provide tenants with long-term tenancy (upwards of 20 years). Landlords benefit from this because it eliminates the danger and financial losses associated with a property becoming unoccupied between renters.
For investors, a triple net lease arrangement is a relatively low-risk investment because the tenant is liable for practically all of the expenditures involved with the property—from taxes and insurance to regular upkeep and maintenance.
Consistent Income Stream
An investor might benefit from a triple net lease since it provides a dependable stream of revenue. This sort of lease is designed to have a steady amount of rent due each month over a long period of time, such as a year or more.
Aside from that, the bulk of unforeseeable or catastrophic property expenditures will be passed on to the renter, therefore reducing any risks associated with the investment.
Triple net lease properties are frequently included in investment portfolios as a prudent, low-risk technique for generating more wealth while minimizing risk. Additionally, investors may opt to sell the property when the market reaches its peak, when the population of the area increases, or when they are ready to leverage the equity in the property to make their next acquisition.
Reduced Landlord Duties
With a triple net lease, you don’t have nearly as many duties toward the landlord as you would with a more normal lease. An investor who has more time and money can pursue other business ideas.
Long-Term Business Footprint
A long-term lease gives tenants the advantage of being able to brand their company’s location as one that is identifiable and will last a long time.
Typically, properties with triple net leases are located in easily accessible places that are in close proximity to other well-known commercial establishments. As a result, a tenant might benefit from increased traffic and exposure from consumers who visit other companies in the area.
Due to the fact that renters under a triple net lease are responsible for paying property taxes, they may be able to deduct these costs from their business expenditures, resulting in tax advantages for their company.
Cons of Triple Net Leases
Leasing companies who commit to a long-term lease lose the power to raise rents if the value of their properties rises significantly in a certain neighborhood. In the long run, this might have a negative impact on earning potential.
Vacancy Risks and Rollover Costs
A tenant’s failure to pay their rent is always a possibility, even if the contract is for an extended period of time and the renters have been properly screened. It is possible for investors to suffer losses during the period in which they are attempting to fill the vacancy.
Assuming Property Expenses
With a triple net lease, the tenant bears responsibility for the day-to-day operations and upkeep of the commercial property in question. In addition to the (at times) significant costs of operating their business, renters must be prepared to pay the building’s operations as well as any unforeseen expenses that may arise as a result of those activities. Triple net leases can be a significant financial burden, and renters must have an excellent credit history in their home country in order to qualify.
When a renter assumes responsibility for property taxes, they also assume responsibility for any related responsibilities, such as fines and penalties for filing a tax return late or incorrectly. What We Appreciate
- Triple net lease advantages include: guaranteed long-term occupancy
- Low risk investment
- And a predictable revenue stream. Increase the amount of equity
- Reduced responsibilities as a landlord
- A long-lasting commercial presence
- Location is ideal
- There are tax advantages
What We Don’t Like About It
- The disadvantages of triple net leasing include: earnings restrictions, vacancy concerns, assuming property expenditures, and tax obligations.
Triple Net Lease Example
Triple net leases are popular among major, global corporations seeking to maintain brand consistency. For instance, Walgreens is an example of a corporation that commonly enters into triple net leasing agreements. Walgreens was the second-largest drugstore in the United States in terms of total prescription revenue in 2019. Walgreens is a pharmacy and convenience store that focuses in prescription medications and home products. Walgreens has chosen triple net leases with a 25-year term. An organization that chooses a triple net lease releases the landlord from any and all responsibilities, both financial and physical.
Walgreens, on the other hand, may pick and choose from a variety of great retail locations by agreeing to triple net leases.
Walgreens looks seeking these corner spots because they provide the most visibility possible. According to industry experts, the firm is an outstanding tenant in the world of triple net leases, and it is also a conservative investment for investors.
Any renter signing into any sort of lease must be aware that their rent payments, whether they contain additional charges or notes, may grow in the future, regardless of the type of lease. A landlord may raise the rent in response to legitimate rent increases approved by local governments, such as those mandated by the Fair Housing Act. However, rents may rise as a result of reassessments of property taxes or increases in insurance rates, among other factors. However, there are other options.
- This sum includes the rental price for the space as well as any other expenses that may arise as a result of the arrangement.
- Their renter is responsible for covering these expenditures by including them in the rent they are required to pay.
- Even while traditional leases are more prevalent than net leases, they provide a greater risk to the landlord, who is responsible for covering any unexpected rises in the additional expenditures.
- A modified gross lease is another option to consider in lieu of a net lease.
- Some of the additional costs connected with the property, such as property taxes, utilities, insurance, and maintenance, are borne in part by the tenant throughout the course of the lease term.
Triple Net Lease FAQs
Triple net leases can be advantageous to both renters and landlords, depending on the circumstances. A tenant has greater flexibility in terms of their structure; they may personalize their space in order to achieve greater brand consistency without incurring the financial burden of a purchase. Another advantage is that these leases are typically extremely flexible, with restrictions on tax hikes, insurance increases, and other increases, among other things. Triple net leases may be a dependable source of revenue for landlords, and they need nothing in the way of overhead expenses.
What Is the Difference Between a Net and Triple Net Lease?
A net lease is a form of lease in which the tenant is responsible for a portion or the entirety of the property’s taxes, insurance fees, and maintenance charges in addition to the basic rent. Net leases are a type of lease that is often utilized in commercial real estate. There are three forms of net leases: single net leases, double net leases, and triple net leases. Single net leases are the most common type of net lease. Taxes, maintenance, and insurance payments are all paid by the tenant when they sign a single net lease.
By signing a double net lease, a tenant acknowledges that they are agreeing to pay for two of the three expenditure categories.
These kind of leases are frequently referred to as net-net leases. Lastly, by signing a triple net lease, a tenant acknowledges that they are agreeing to pay for each of the three expenditure categories. Triple net leases are frequently referred to as net-net-net leases or net-net-net leases.
Can You Negotiate a Triple Net Lease?
With a triple net lease, the tenant is responsible for practically all of the financial obligations. All overhead costs involved with owning the property, including taxes, insurance, running expenses, utilities, and other fees, are the tenant’s responsibility in addition to paying the rent. As a result, the amount of the basic rental might become a crucial negotiation point. A more advantageous base rental payment may often be negotiated because the tenant is assuming the risk associated with the landlord’s expenses.
How Do You Calculate a Triple Net Lease?
Various methods may be used to determine how much money is required for a triple net lease. Occasionally, landlords may tally together all of the property taxes, insurance, maintenance expenditures, and common area charges for a building and divide the amount by 12 to determine the rental rate. The cost each month is represented by this figure. When only one tenant is leasing a facility, the lease procedure is made more simpler. Most of the time, the monthly base rental price is computed using a rate per square foot of space occupied.
What Is the Landlord Responsible for in a Triple Net Lease?
With a triple net lease, the tenant is liable for the majority of the expenditures associated with the commercial property. The landlord, on the other hand, may be liable for the roof and the building, as well as the parking lot in some cases.
The Bottom Line
A net lease is a form of real estate contract in which the tenant is responsible for one or more additional expenditures. Net leases are generally used for commercial rental properties. There are three fundamental forms of net leases: single, double, and triple net leases. Single net leases are the most common. With a triple net lease, the tenant agrees to pay for all of the expenditures associated with the property, including real estate taxes, building insurance, and general upkeep and maintenance.
Triple net leases may have a lower base rent charge than traditional leases since the tenant is responsible for a greater portion of the property’s expenditures.
With a step-up lease, the rental agreement specifies that future price increases will be implemented throughout the term of the contract.
Ground leases allow tenants to make improvements to a piece of property while the lease is in effect.
An NNN Lease Versus a Gross Lease: What’s the difference?
You decide that you want to lease a space for your company, and the realtor offers you with a lease amount that is denoted by the letters NNN. What does the abbreviation NNN stand for? What is the difference between this and another option known as a gross lease? Is one of them superior than the other? Now, let’s have a look at the differences, because it’s always a good idea to be aware of what you’re talking about before making a comparison. An NNN lease is the most prevalent kind of commercial lease, and it is sometimes referred to as a triple net lease in some circles.
- The NNN costs for a building include property taxes, property insurance, and common area upkeep for the building as well as other expenses (CAM).
- The amount of yearly costs is calculated by dividing the total amount of rental square footage in the building by the whole amount of annual expenditures.
- Consider the following scenario: a commercial real estate lease in Cedar Rapids is offered at $14 NNN.
- Assume that the taxes are $7 per square foot per year, the property insurance is $0.40 per square foot per year, and the CAM is $3.00 per square foot per year in this case.
- If you are leasing 4,000 square feet, your annual rent would be $97,600, which translates to $8,133.33 each month.
- The gross rate, also known as the full-service rate, covers everything in the total leasing fee, including taxes, insurance, and maintenance.
- On a gross lease, the landlord is responsible for all or the majority of the expenditures related with the property.
On a gross lease, you are responsible for paying your own property insurance as well as your own taxes.
This is entirely up to the person, and there are advantages to both approaches.
The monthly rent on a NNN lease is often lower than the monthly fee on a gross lease; but, with a NNN lease, you are also responsible for the upkeep of the property itself.
For example, the cost of snow removal is expected to be significantly greater this winter than in prior years, and this increase will not be passed on to you.
The most fundamental rule of business leases is that renters should thoroughly study their leases and discuss with their landlords exactly what expenditures they are accountable for before signing them.
Find commercial real estate property in Cedar Rapids and the surrounding region by using the search box above.
Interested in learning more? Learn more about CAMcharges and the commercial real estate lease in our blog post. Look no further than the informative video shown below, in which Craig and Jason provide some useful information about the NNN lease.
What Is a Triple Net (NNN) Lease and What’s Included in It?
It’s likely that you’ll come across a number of commercial real estate phrases that you aren’t acquainted with when looking for office, retail, or industrial property. At AQUILA, we’ve assisted hundreds of clients in navigating and comprehending this real estate jargon and terminology. What is a triple net (NNN) lease and what it entails will be discussed in this article, as well as a brief overview of the various different types of lease arrangements. Continue reading:Commercial Leases in Austin, Texas: The Most Common Types
What Is a Triple Net (NNN) Lease?
Known also as a NNN Lease, a triple net lease is a type of lease in which the tenant agrees to pay their pro-rata portion of all expenditures related with the property’s upkeep, taxes, and insurance, in addition to a specified base rent. These expenditures are referred regarded as “operation expenses” in most circles. The expenditures involved with managing and maintaining a commercial property, such as an office building or a shopping center, are referred to as operational expenses (op/ex) or operating costs.
The total of your yearly rental obligations, referred to as gross rent, under a triple net lease will be equal to the sum of your base rental rate plus running expenditures.
How Much Does It Cost to Lease Office Space in Austin, Texas?
(Rental Rates, Pricing, and so forth.)
What Does a Triple Net Rental Rate Include?
Essentially, with a triple net lease, the agreed-upon rental amount, often known as base rent, is money in the landlord’s pocket. In this case, the money will be utilized to pay off any outstanding debt on the property, and it is also where a profit may be generated. In addition to the basic rent, you agree to pay for any running expenditures that arise as a result of your occupancy. The tenant is solely liable for the actual cost of operating the property over the course of the year, notwithstanding the fact that these operating expenditures will be reimbursed at an expected rate.
More information may be found at: The Definition of Opex Reconciliation and What It Means for Tenants and Landlords This is in contrast to a full-service lease arrangement, in which the tenant agrees to pay a set fee that covers all running expenditures as part of the lease agreement.
Also keep in mind that if the property’s operational expenditures decrease for whatever reason, you will see that reduction directly reflected in your gross rent.
On the other hand, because operational expenditures might fluctuate from year to year, it can be difficult to plan for your yearly rental payments because they are unpredictable.
Other Lease Elements
Along with your rental rate and running expenditures, there are other aspects of a NNN lease that might have an impact on your entire financial commitment. Here are a few examples. Check out the following article:Your Guide to the Elements of a Commercial Lease
Tenant Improvement Allowance
Rental property owners may give renters a tenant improvement allowance (TI allowance) as a form of inducement to persuade them to sign a lease. When a tenant wants to build up their office, retail, or industrial space, they are often offered a dollar amount per square foot by the landlord. In most cases, tenant improvement allowances can be utilized to pay any hard or soft expenditures related with your space, such as paint, flooring, wiring, and other similar expenses.
Free Rent is another another form of inducement that landlords frequently provide to tenants who sign long-term leases. Free rent is exactly what it sounds like: when a landlord provides a renter a few months of rent at no cost at the beginning of the lease, this is known as “free rent.” The tenant is nevertheless liable for running expenditures over the term of a triple net lease, which is characterized by free rent that often only applies to the base rent.
Other Types of Lease Structures
A triple net structure is used to arrange the majority of office leases in the city of Austin. But there are a variety of additional lease options that you may encounter in different marketplaces. These are some examples:
- Full Service/Gross: The tenant pays a single, flat yearly price that includes an estimate from the landlord as to what the landlord’s operating and capital expenditures will be throughout the course of the lease. Single Net: the renter is responsible for their pro-rata portion of property taxes in addition to base rent. A double net arrangement is one in which the tenant pays their pro-rata portion of property taxes and insurance in addition to the basic rent. According to a percentage, the tenant agrees to pay a basic rent and running expenditures, in addition to an extra variable monthly cost that is based on the tenant’s monthly income
Continue reading:Commercial Leases in Austin, Texas: The Most Common Types
Please refer to the following articles if you want to learn more about Triple Net Leases or alternative lease structures:
- Commercial Leases in Austin, Texas are typically of the following types: The Elements of a Commercial Lease: A Guide for the Uninitiated I’m wondering how much it would cost to lease office space in Austin, Texas. (Rental Rates & Pricing
If you’d want to learn more about leasing office space, check out our Ultimate Guide to Finding Office Space for additional information.
What the Heck Does NNN Mean? Commercial Real Estate
In the course of your search for commercial real estate, whether it’s for office space, warehouse space, industrial space or retail space, you’ve definitely come across the term “NNN” next to the advertised rent and wondered what it meant. No longer are you perplexed. In this piece, we’ll dispel the mystery around what the heck NNN stands for in relation to all of the Office, Warehouse, and Retail Space listings you’ve been seeing on the internet.
What Does NNN Mean?
NNN is an abbreviation for Triple Net Rent. Commercial real estate rent of this sort is structured such that you pay the amount specified plus extra expenditures (often Operating Expenses) on top of that. Suppose the Office Space listing you’re interested in states that the rent is $24.00 NNN per sqft/year (net notional rent). The $24.00 figure represents your Base Rent. That is the bare minimum amount of rent that you must pay in order to lease the premises. In addition to the Base Rent, you will be required to pay additional funds to cover the costs of operating the building (or NNN or Triple Net Expenses).
This list of expenditures varies from property to property, although they are generally less than the Base Rent that is indicated. More information on the advantages and disadvantages of NNN may be found here.
What Do NNN Expenses Include?
Typically, your proportionate part of the exterior upkeep of the building, as well as your property insurance and property taxes, are included in your NNN expenditures. It is customary for them to be quoted on a per-square-foot basis.
Are There Any Other Expenses to Consider?
Essentially, the answer is yes. In addition to paying your Triple Net Expenditures, you will be liable for your own expenses associated with operating your business out of the space. Electricity, water, gas, and other utilities, as well as internet access and cleaning services, are included in these costs. Given that NNN rentals are not easily discernible, you should always inquire of the landlord or the commercial real estate agent that represents the listing on the NNN rates. Following the receipt of this information, you may add it to the basic rent to determine your total out-of-pocket monthly rent expenditure for leasing the commercial space.
Then, in order to calculate your total monthly rent, you must add the $24.00 basic rate plus an additional $6.00, divide the amount by 12 months, and multiply the result by the total square feet you will be leasing.
Then do anything along the lines of: Rent per month is calculated as (24+6 = 30) / 12= $2.50x 3,000= $7,500.
Commercial Real Estate Terminology
It is always possible to look up the meaning of any commercial real estate lease terms in ourGlossary of Commercial Real Estate Terms if you come across any that you are not acquainted with.
Digsy’sOn-Demand Commercial Real Estate Experts not only save you time by assisting you in choosing the ideal place for your company, but they also relieve tension by assisting you in understanding rentals, running expenditures, and even negotiating with landlords on your behalf, among other services. You can find out more about using Digsy to locate commercial real estate by visiting this page. If you have any more questions, please post them in the comments section below and we will get back to you as soon as possible!
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County of Los Angeles Orange County is a county located in the U.S. state of California. San Bernardino County is located in the state of California. Riverside County is located in the state of California. County of San Diego Currently, Andrew serves as the co-founder and CEO of Digsy, a free online platform that assists local company owners in saving time and money when searching for their ideal office, retail, or warehouse space. Andrew worked as a Senior Vice President and Principal of LeeAssociates Commercial Real Estate Services in Irvine, California, before joining Digsy.
What You Should Know About The Triple Net (NNN) Lease
The NNN Lease, often known as the triple net lease or just the triple net lease, is a typical lease arrangement in commercial real estate. The triple net lease structure, despite the widespread use of the NNN lease, is still widely misunderstood by many commercial real estate professionals, despite its popularity.
Throughout this post, we’ll take a deep dive into the NNN lease, debunk some popular misconceptions about the triple net lease, and then tie everything together with a clear and straightforward example.
What is a Triple Net (NNN) Lease?
First and foremost, what precisely is a triple net lease, sometimes known as a NNN lease? A triple net (NNN) lease is described as a lease type in which the tenant is liable for paying all of the operational expenditures connected with a property under the terms of the agreement. Triple net, also known as NNN, leases are considered a “turnkey” investment since the landlord is not liable for any of the associated running costs. Having said that, in order to completely comprehend the NNN lease, it is necessary to first have an understanding of the spectrum of commercial real estate leases.
The Spectrum of Commercial Real Estate Leases
Generally speaking, all commercial real estate leases lie somewhere along a spectrum, with absolute net leases on one end and absolute gross leases on the other end of the spectrum. The majority of leases fall somewhere in the center and are therefore classified as hybrid leases. A triple net or NNN lease is commonly referred to as an absolute net lease by the majority of people when they talk about them. Even if a lease is designated as a NNN lease, this does not imply that it is an absolute net lease in the traditional sense of the term.
As an example, in the case of a newly constructed building, the tenant may be liable for paying replacements such when roofs and HVAC systems as they wear out over time.
When working with commercial real estate leases, the most essential thing to remember is to ALWAYS read the lease before signing it.
Simple labels such as triple net, full service, or modified gross, which are routinely employed by brokers and landlords, will frequently be in contradiction with the actual terms of the lease, as would the actual conditions of the lease.
What the NNN Lease Does Not Include
No matter if you have signed an absolute net lease, a widespread misconception is that even an absolute net lease covers all of the expenditures related with the property, which is not always the case. Despite the fact that a real absolute NNN lease with a good tenant might be considered of as a turnkey commercial property from the standpoint of the landlord or investor, even an absolute net lease contains some expenditures that will not be covered by the tenant (s). If the landlord’s CPA charges for accounting services, or if the landlord’s attorneys charge for legal services while preparing or reviewing papers, it is uncommon for a NNN lease to cover such fees as well.
Triple Net Lease Investment Risks
A prevalent misperception about triple net lease investments is that they are almost risk-free. This is not true at all. While triple net investments provide a number of advantages, there are also a number of hazards that should be taken into mind before proceeding. As a result of the long-term leases and pass-throughs in place, triple net lease investments provide a predictable revenue stream, as well as a generally hassle-free investment due to the low management needs associated with the investments.
First and foremost, because the majority of triple net lease investments are made in single-tenant buildings, it is critical to understand tenant credit risk.
As an example, However, it is conceivable for a financially robust and publicly traded tenant to fall out of favor throughout the course of the lease and, as a result, file for bankruptcy.
Another danger to think about is the possibility of re-releasing.
If the new owner does not have the necessary capabilities or a competent staff to execute the transition, there is a significant danger of tenant rollover.
Assessing Tenant Credit Risk in a Triple Net Lease
In order to properly evaluate a triple net lease investment property, it is necessary to first understand the credit risk associated with the real tenant (s). After all, a lease is only as strong as the tenant who is signing it, therefore examining the financial accounts of the tenant on the other side of a NNN lease is crucial to determining the extent of the downside risk involved in the transaction. Several single tenant triple net lease transactions feature publicly listed corporations, such as Starbucks, Walgreens, and Arby’s, among others.
Credit research for private enterprises takes a little more time and work, but it is a worthwhile exercise if the goal is to gain a better understanding of credit risk by reviewing financial statements and patterns.
What You Should Know About Commercial Real Estate Leases
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Triple Net Lease Example
Let’s look at an example of how a proforma is formed when a triple net lease is in place to see what we mean. For example, let’s say we have the following cash flows for a hypothetical investment property: The proforma presented above does not contain any expenditure reimbursements from the tenant. To put it another way, the proforma assumes that all of the leases are absolute gross leases, which means that the landlord is responsible for all of the expenditures associated with the property. Now consider how the proforma changes if the renter pays the landlord’s whole bill for the property’s upkeep and repair costs: On the second proforma, it can be seen that the triple net lease in place generates extra reimbursement revenue that completely offsets all of the operational expenditures.
Ultimately, however, what the NNN lease does is that it transfers the obligation, and hence the risk, of covering running expenditures from the landlord to the tenant, which is beneficial to both parties.
The example above illustrates how a proforma might be constructed in the event that these reimbursements were made.
This lease form, sometimes known as the “triple net lease,” is a popular one in the commercial real estate industry because of its flexibility. Throughout this essay, we discussed the definition of a triple net lease in the context of the broader range of commercial real estate leases available.
As part of this discussion, we also addressed some common misconceptions regarding the NNN lease, covered some of the primary risks involved with triple net lease investment properties, and ultimately went over the process of creating a triple net lease proforma from scratch.
What Does ‘NNN’ Mean in Commercial Real Estate?
Real estate has traditionally been the preferred investment for people seeking to accumulate long-term wealth for their families and future generations. By subscribing to our complete real estate investment guide, you will receive assistance in navigating this asset class. It’s understandable that if you’re unfamiliar with the realm of commercial real estate, you might be thinking, “What does NNN mean?” We’ve included a brief explanation of this often used real estate phrase below. Please continue reading to discover more about what the word “NNN” means in a business context, how this sort of commercial lease differs from other types of lease arrangements, and what the benefits of leasing a triple net property are to you.
What does NNN mean?
“NNN” is an acronym for the term “triple net lease,” which is used in the real estate industry. As an underlying commercial lease structure, the triple net lease has a condition which states that the lessee is liable for covering certain expenditures involved with the property’s operation in addition to paying their basic rent. When using a triple net lease, these operational expenditures are likely to be divided into three distinct categories, or “nets.” They are as follows:
- Real estate taxes, property insurance, and operating expenditures are all included.
Despite the fact that the lessee will only have to write one check to the landlord, their monthly rent is often divided down into two independent components: the basic rent and the NNN fee, which are both paid to the landlord separately. The term “base rent” refers to the monthly rent that is specified in a business contract. It is also the very minimum amount of rent that will be charged to the renter on a monthly basis. On the other hand, NNN expenses are an extra charge that is intended to pay the three sorts of fees described above.
Triple net lease calculation example
It is common in commercial leases to compute both the basic rent and any NNN charges on the basis of a flat cost per square foot. Consider the following scenario: you’re leasing a 1,000-square-foot office space at a basic rental cost of $25 per square foot and a NNN rate of $10 per square foot, respectively.
- A base rent of $1,000 square feet multiplied by a rate of $25 per square foot equals $25,000 per year or $2,084 per month
- NNN expenditures of $1,000 square feet multiplied by a rate of $10 per square foot equals $10,000 per year or $834 per month a total annual leasing rate of $35,000 (equivalent to $2,917 per month)
How does an NNN lease differ from other types of commercial real estate leases?
Despite the fact that the triple net lease is a frequent lease form, it is simply one sort of commercial real estate lease among several. We’ve included a quick overview of the different sorts of business leases below to make the process of drafting a lease agreement a little easier. You should go over them to have a better understanding of what sort of lease would be the best option for your investment property.
A gross lease, which is sometimes known as a “full-service lease,” just charges the renter the base rate. With this sort of lease, the landlord agrees to cover practically every operating expense related to the operation of the facility, such as maintenance fees, property taxes, and building insurance, as well as the cost of the structure itself.
Modified gross lease
A modified gross lease is a type of lease that falls between between net leases and gross leases. A base rental fee, utilities, and a share of the NNN expenditures are often agreed upon by the renter in this situation.
According to the unique lease, the specifics of what each party is responsible for will vary; nevertheless, in most cases, the tenant’s NNN fee is calculated based on the percentage of the building that they occupy.
An “N lease,” often known as a “single net lease,” is a type of commercial contract. In the case of a single net lease, the lessee is responsible for both the base rent and the real estate taxes due on the property. In this case, the landlord is responsible for paying the property insurance premiums as well as any running expenses incurred over the duration of the lease.
As you might have guessed, a “NN lease” is also referred to as a “double net lease” in some circles. In a double net lease, the tenant is liable for the payment of property taxes and building insurance, while the property owner is responsible for the payment of maintenance charges.
Absolute NNN lease
According to an absolute NNN rental agreement, a tenant is liable for all of the expenses related with the care and operation of the facility, including any substantial repairs that may be required. This sort of commercial lease is uncommon, and it is often reserved for instances in which there is a single tenant with great credit and a well-established portfolio of properties. Notably, the base price for an absolute net lease is typically substantially lower than the base rate for a traditional lease to account for all of the additional expenditures that the tenant is responsible for.
Compared to the other forms of commercial leases, percentage leases operate in a somewhat different way. As part of a percentage lease agreement, the tenant is required to pay the landlord a percentage of their gross business sales in addition to their base rent payment. Large retail venues, such as malls and shopping centers, are often the primary sort of business that makes use of this form of leasing arrangement.
What are the benefits of an NNN lease?
The most significant advantage of a triple net lease for a property owner is that you assume less financial obligation for the property. As a result, landlords in triple net lease investments are only liable for performing major repairs because the tenant is responsible for paying the tax payment, the property insurance cost, and any operational expenditures. Reduced bills will make overall property management more straightforward, and you’ll require less cash on hand at any one moment as a result of this.
For the tenant
Signing a lease on a triple net property entails a greater level of responsibility in the long run. However, there are some advantages to signing this sort of lease arrangement that should not be overlooked. Most of the time, landlords will provide some benefits in exchange for the renter accepting responsibility for these expenses on their own. Among other things, the landlord could give a cheaper basic rental rate or a credit for tenant improvements.
Finally, the term “NNN” only refers to a certain sort of commercial real estate lease, and it is not intended to be confusing. A triple net lease is one in which the tenant is liable for all of the property’s expenses, including taxes, insurance, and any other running expenses.
If you’re considering signing a lease of this nature, like with any commercial deal, be sure you properly study it and have all of your questions addressed before signing on the dotted line.
What Does ‘NNN Lease / Triple Net Lease’ Mean?
Due to the fact that there is no common lease template or standard form at the state or national level, there are many different types of commercial real estate leases. In most cases, you will not encounter a lease agreement that is even somewhat identical to one that was previously signed by the same landlord on the same property unless you are dealing with the same landlord and on the same property. Even the term of a lease can vary greatly, and shorter leases are not always preferable. Understanding the terms and conditions of a lease agreement becomes even more important in light of all of this.
Whether it’s a triple net lease, a double net lease, a single net lease, a full-service lease, or even a gross or modified-gross lease, the terms of the lease all indicate who is responsible for things like taxes, insurance, and common area upkeep, among other things.
Here, we’ll go through what these phrases imply, how they effect both the tenant and the landlord, and how a triple net lease may provide you greater negotiating power when it comes time to negotiate your lease.
Understanding Commercial Real Estate Leases and Clauses
However, even though there is no standard contract or uniform form for leases, it is crucial to understand that the vast majority of lease agreements are written with the landlord’s best interests in mind. Knowing the many types of lease arrangements, as well as the rewards and liabilities that come with them, is the most important thing you can do to prepare yourself for the process of assessing leases, especially for seasoned professionals. While finding the correct location is vital, obtaining the appropriate lease conditions is even more critical in order to guarantee that your firm can maintain healthy cash flow and accurately account for all ongoing costs.
If you are signing a legally binding contract that has been prepared by an opposing party, it is essential that you have had the document well reviewed and understood.
It’s critical to understand the many types of lease forms and conditions before reaching an agreement on the terms of a property and moving forward with a draft lease.
Understanding this will assist you in correctly evaluating all of your alternatives so that you can comfortably move forward with a certain property purchase.
WHAT IS A NNN LEASE / TRIPLE NET LEASE?
One of the most frequent lease structures in commercial real estate is the Triple Net Lease, sometimes known as the NNN Lease. Furthermore, a Triple Net Lease incorporates a condition that states that the tenant is liable for certain expenditures involved with maintaining and managing the property in addition to their regular rent. These expenses are broken down into three “Nets.” Each “N” or “Net” represents one of the following: Property Taxes minus the net amount Insurance is referred to as a net.
Repairs and maintenance expenditures, garbage removal, snow removal, landscaping, parking lot upkeep, security and fire safety, elevator maintenance, property management, and outside lighting are just a few examples of the costs associated with these services.
With a Triple Net Lease, you normally pay the landlord one check every month, but that check is divided into two primary categories: the rent and the maintenance.
- The Base Rent Amount
- The Triple Net Amount (also known as NNN)
- And the Net Rent Amount (also known as NNN).
It is based on the square footage of the property that you are leasing or occupying that you compute both your basic rental costs and your triple net lease expenditures. The following is an example of how payments would be broken down: If you rented 2,000 square feet at a $24 per square foot Base Rent (or lease rate) and a $8 per square foot Triple Net, the payments would be as follows:
- Base Rent: 2,000 square feet multiplied by $24 per square foot is $48,000 per year or $4,000 per month. Triple Net: 2,000 square feet times $8 per square foot equals $16,000 a year or $1,333 per month.
Rental costs are $5,333 per month for the entire apartment, with the Triple Net amounting to $1,333 per month. Some jurisdictions, such as California, categorize their lease rates according to the price per square foot per month.
Why Triple Net Leases Are Popular
Among the most prevalent types of leases you’ll encounter are triple net leases in retail assets as well as modern medical office buildings, hospital campuses, and the bulk of traditional office buildings. After a Full-Service Lease, Gross Leases and Modified Gross Leases are the most often used types of leasing agreements. There are a variety of reasons why triple net leases are so popular. They are simpler to get for renters because they relieve the landlord of part of the burden of property management and investment, such as building insurance and maintenance fees, by assuming some of these responsibilities.
Triple Net Lease: Risks and Benefits
Triple Net leases, like most things in life, offer advantages as well as disadvantages, as well as added responsibilities. Now, let’s take a closer look at each of them so you can make a better educated choice about whether or not this option makes sense for you and your practice.
Benefits of Triple Net Leases
Rent is typically computed on a per-square-foot basis over a 12-month period in the majority of states. States such as California, on the other hand, charge rent on a per-square-foot-per-month basis. As a result, $24 per square foot each year in Florida is equal to $2 per square foot per month in California. Triple Net leases provide a number of advantages over other types of leases, including the fact that they are frequently easier to obtain for tenants because of their transparent price structure.
As an extra benefit, you may utilize this structure to your advantage while negotiating a lease, particularly if you have excellent credit, good financials, and a long track record of on-time payments and payments in full.
Obligations of Triple Net Leases
Rent is typically computed on a per-square-foot basis over a 12-month period in most states. The cost of renting a square foot per month is charged in some areas, such as California. The result is that in Florida, $24 for each square foot per year is the equivalent of $2 for each square foot per month in California. Additionally, as previously indicated, Triple Net leases are frequently easier to get for tenants because of their straightforward price structure. Triple Net leases also have the additional advantage of being more flexible in terms of term length.
As an extra benefit, you may utilize this structure to your advantage when negotiating a lease, particularly if you have excellent credit, good financials, and a long track record of on-time payments, as described above.
To discuss all of these factors and how they pertain to your specific practice, our CARR team is available for confidential discussions. Please contact us for more information. The fact that we advocate on your behalf to assist you in making decisions that are in your best interests and position you for the highest degree of success for years to come is something we take great pleasure in.
Professional tenant representation is a requirement no matter what level of your practice you are at at the moment. We’re here to protect your healthcare practice from financial obligation and additional expenditures, so that you may focus on building a successful future.
The Benefits of a Key Advisor
It is subtle and complicated to navigate the commercial real estate business, and we want you to transfer this task to us! Consequently, you will have more time to devote to the more sophisticated areas of your profession, while we will handle the negotiating, site selection, and due diligence processes associated with commercial real estate transactions. It’s what we’ve been doing for decades, and it comes at no cost to you. You can be certain that we are entirely lobbying on your side in all areas.
Your practice’s physical location communicates a great deal about it and has an impact on all aspect of its operations, including staffing, patient retention, referrals, and much more. It is critical that you locate and advertise your practice in the most effective manner possible. Our specialists are available to assist you in determining the marketability of any location, property, and space you are contemplating in order to maximize the use of your commercial property for the benefit of your practice and maximize your profits.
Managing the Process
We are devoted to walking alongside you throughout the whole process, and our specialists will be there for you at every stage. Starting with site selection and due investigation, we’ll guide you through the whole process, from negotiating leases and purchase contracts to building the most skilled and experienced team of partners in the business.
The ultimate purpose of our firm is to serve as your trusted adviser and champion in order to assist you in achieving the outcomes you deserve.
With a Triple Net lease, you, as the tenant, have a tremendous amount of negotiation leverage in your favor. A cheaper monthly base rent may be available to you since you are covering a greater proportion of the property’s expenditures and accepting greater risk. This is especially true if you have an excellent credit history and other indicators of reliability. We can assist you in determining the most effective strategies to capitalize on these advantages while you negotiate your lease. In the second installment of this series, we will discuss Full-Service Leases.
Each of these lease alternatives has its own breakdown of what the tenant is liable for and what the landlord is responsible for, resulting in significant disparities in price per square foot and continuing expenditures between the two options.
Understanding each phrase will better prepare you to make the most educated decision possible for the benefit of your business.
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