Leases can be complicated agreements and the type of space you lease typically determines the type of lease your landlord will likely use. Let’s discuss three types of leases: Triple Net (NNN), Modified Gross and Gross.
Triple Net Lease (NNN) is commonly associated with retail and industrial properties. The easiest way to remember this is that each N stands for an expense net of the base rent. The three expenses are Property Taxes, Common Area Maintenance (CAM) and Insurance (Property). If the building is multi-tenant, the tenant will be responsible for their share of the NNN equal to their share of the building. For example, say property taxes are $100,000 and the tenant occupies 25% of the building, their portion of the property taxes would be $25,000.
The Gross Lease is mostly associated with office properties. In this lease, the tenant pays a set rent of say $5,000 per month and from that the Landlord pays for the real estate taxes, insurance and maintenance.
The Modified Gross lease is used typically with office properties, in addition to the base rent the tenant pays a proportion of the operating expenses (maintenance, utilities, property taxes, janitorial). Typically, the first 12 months a tenant occupies the space is their base year with the operating expenses for that year being the “base year expenses”. Assuming the operating expenses increase the next year, the tenant would be responsible for the increase equal to their proportional share of the property.