If you are considering leasing commercial real estate, you have probably come across listings which include NNN or triple net charges for the lease. A commercial lease typically includes the base lease rent for the property and may also include a NNN or other management or brokerage fees. A commercial lease with a NNN charge means that there are additional charges on the property that are typically passed on to the tenants in the form of a monthly fee or triple net charge.
What is Covered in NNN?
A tenant is typically responsible for the repairs and maintenance of everything inside the leased space, while the landlord covers other fees on the property, but may also pass them on to the tenant in the form of a NNN charge. The NNN charge will typically cover things like property maintenance, landscaping, site improvements, security, taxes, common utilities, insurance payments and repairs.
In a NNN lease, the tenant will typically pay the NNN in proportion to their actual use of the square footage of the property. For example, if a retail space is leasing 2,000 square feet in a 10,000 square foot center, they are responsible for 20% of the properties costs. The base rent is increased by the NNN charge so that the landlord is able to recover the expenses for taxes, maintenance and insurance. Sometimes a property will have vacancies and the landlord will have to absorb the NNN costs for the vacant property.
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How is the NNN Charge Paid?
The total monthly cost of the NNN charge is typically taken as an estimated annual charge and divided by twelve months to get the monthly NNN charge. Since it is only an estimate, sometimes the NNN charges can be much less than the actual shared costs on the property. The landlord remains responsible for structural repairs to the building including the roof, sidewalk, parking areas, and other common areas used by tenants and their customers.
The NNN rate is typically quoted as a price per square foot. For example, a lease rate might be $2 a square foot for 1000 square feet, plus a NNN charge of 35 cents a square foot or a NNN monthly charge of $350 per month. The cost of leasing the space monthly would be $2000 in base rent plus $350 in monthly NNN charge for a total of $2,350 per month paid to the landlord.
What About Utilities?
Utilities are typically not covered in the rent if they are separately metered. That means that the commercial tenant will have monthly charges for utilities such as gas, electric, water, sewage, security, internet and other monthly costs that are not covered in the costs of rent. Sometimes a landlord will include the costs of utilities in the rent if it is too difficult to divide the usage among the tenants.
Leasing a commercial space for your business can be a time consuming process that requires a lot of experience and knowledge of commercial leases. When looking for a commercial lease property, keep in mind that you may be quoted the base rental rate, so make certain to ask if there is a NNN charge or any other monthly fees associated with the lease.
Commercial Real Estate Terminology
If you come across any commercial real estate lease terminology you are unfamiliar with, you can always visit our Glossary of Commercial Real Estate Terms to find out what they mean.
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