Differences Between Gross and Triple Net Leases
When you are looking at similar properties to lease, but the asking lease rates vary greatly, should you take the lowest quoted lease rate? Where instinct might tell you that is the best deal, you cannot truly know if this is true until you understand the different types of leases on commercial real estate.
Let’s start with Gross leases, there are two types. The first is called a Full Gross lease. The second is called a Modified Gross Lease.
Full Gross Lease
A full gross lease requires the tenant to pay a flat monthly payment for use of the space/property. The owner of the property is responsible for the costs associated with property including taxes, insurance, maintenance and utilities.
Full gross leases allow tenants to accurately budget their monthly rent expenses. For the property owner, they must determine a rate that will cover all of their expenses, which can vary. Full gross rents are most common in a building that has multiple tenants with one heating and cooling unit, and general shared common area.
Modified Gross Lease
Modified gross lease is a lease structure where both the landlord and the tenant are responsible for paying a portion of the operating expenses. The arrangements between the landlord and tenant can vary greatly between property and negotiation arrangement. An example of such an agreement might be that the tenant pays base rent, utilities, and refuge collection. The landlord would pay taxes, insurance, and common area maintenance as well as mechanical system maintenance.
Triple Net Lease (NNN)
The Triple Net Lease, also identified as NNN, are leases whereby the tenant pays a base rent, based on square foot use, plus all the expenses of the property including real estate taxes, building insurance, and maintenance, and utilities. As you would expect, the base rent factor is generally lower because of all of the variable expenses added to the net rent. Triple net leased properties are common for investment properties and can provide low-risk steady income.
Besides these three basic lease types, there are many other types of lease arrangements available to tenants. The only way to determine what type of lease you have, and the responsibilities of who is responsible for which expenses, is to thoroughly read the lease agreement. A commercial real estate broker can help you understand the lease terms, as well as a commercial real estate attorney. The devil can be in the details.