You’ve decided you want to lease a space for your business, and your realtor presents you with a lease amount that says NNN. What does NNN mean? How is it different from another option called a gross lease? Is one better than the other? Let’s look at the difference, because it’s is always good know what you are talking about before you actually compare.
An NNN lease is the most common type of commercial lease and is commonly called a triple net lease. In an NNN lease agreement, the tenant assumes additional financial responsibilities beyond the base rent. The three “N’s” the tenant is responsible for are property taxes, insurance premiums, and maintenance costs called CAM. The tenant is expected to pay for these expenses in addition to their monthly rent payment.
How are the tenant’s total expenses in addition to base rent calculated? The landlord uses the amount of annual costs and divides it by the total number of rental square footage in the building. The landlord includes the totals for property taxes, insurance, maintenance and common area upkeep and then divides the sum by 12 to arrive at a monthly cost.
For example, if a Cedar Rapids commercial real estate lease is quoted as $14 NNN. This means that in addition to the $14 square foot yearly rate you are also responsible for paying the taxes, insurance, and common area maintenance fees. In this example assume the taxes are $7 square foot per year, the property insurance is $0.40 per year and the CAM is $3.00 square foot per year. Based on those numbers your total yearly rent would be $24.40 per square foot per year. If you are leasing 4,000 square foot your yearly rent would be $97,600 or $8,133.33 monthly rent.
So, what is gross lease? In a gross lease, the tenant pays a single, fixed rent amount to the landlord, who assumes responsibility for most, if not all of the property’s operating expenses. These expenses typically include property taxes, insurance premiums, maintenance costs, utilities, and janitorial services. Essentially, the tenant’s rent covers all these expenses, and they are not directly responsible for their payment. This type of lease can provide a sense of simplicity and predictability for tenants, as they know the total amount they need to pay each month.
So which type of lease agreement is most beneficial to you, the tenant? Well this is up to the individual, and there are pluses to both.
An NNN lease gives tenants more control over the property’s maintenance and customization, allowing them to adapt the space to their specific business needs. In addition, an NNN lease often spans longer terms, providing tenants with stability and the ability to establish their business in a particular location.
Gross rate lease can beneficial to as well because it’s much easier to budget your expenses for the year without worrying about unexpected building expenses. For example, this winter, the cost of snow removal is going to be much higher than in previous years and would not be passed on to you. The landlord assumes all responsibility for the building and costs associated with it, allowing the tenant to concentrate on growing their business.
The most important rule of commercial leases is for tenants to read their leases carefully and clarify with the landlord exactly what expenses they are responsible for. At the end of the day, it’s a matter of what the tenant is comfortable with – making a set monthly payment or paying only for what you use.
Want to learn more? Read our blog on CAM charges and the commercial real estate lease, or check out the informational video below where Craig and Jason share some helpful information on the NNN lease.
Let one of our knowledgeable listing agents partner with you to find a commercial real estate property perfect for your business needs, and assist you in working through the lease process. Contact Jason Rogers, Craig Byers, or Austin Geasland at 319-294-3339 today.