The Base Year Expense Stop is the actual total expenses for the property property tax, property insurance, and CAM costs for the full year in which the lease commences. A tenant with a base year expense stop is responsible for paying its proportionate share of increases in property expenses over and above the Base Year Expense Stop. For example:. This process would continue for the remaining years in the lease term, with no change to the base year expense stop.
At NavPoint Real Estate Group, we strive to exceed the expectations of our clients by providing a clear route to success in every real estate transaction. If the roof starts leaking, the tenant may have to call their roofer and get him over to fix it and pay him. A modified gross lease is a mix of tenant and landlord paid expenses.
The landlord typically pays the taxes and insurance, but the tenant still pays for their office expenses, such as janitorial. The utilities may be paid by the tenant or the landlord. There are many ways the expenses can be split, but with gross leases, the rent is usually higher than an NNN lease to make up for the extra expenses the landlord is paying.
The gross lease is when the landlord pays all the expenses including taxes, insurance, maintenance, utilities, and even janitorial service. The tenant just pays rent, which is usually much higher on a gross lease than an NNN lease. There are many types of leases, and within those leases, different definitions for what they mean. We typically see NNN, absolute, and modified gross leases here.
We rarely see NNN or gross leases, although they do exist. One thing is for sure, make sure you read the lease and know exactly what you are responsible for whether you are the landlord or the tenant! Become an InvestFourMore Insider to get exclusive content, calculators, and deals. Mark Ferguson is the author and creator of InvestFourMore. Mark has flipped over homes including 26 in and 26 in Mark also owns 20 rentals including a 68, square foot commercial strip mall.
Mark started Blue Steel Real Estate, a real estate brokerage in He has also published 7 books in paperback, Kindle, and audiobook form that you can find on Amazon. This site uses Akismet to reduce spam. Learn how your comment data is processed. Customer Support. What expenses does the NNN lease include? Common area maintenance CAM When I first heard the term common area maintenance, I was thinking of a common area for many businesses, like a reception room or hallway.
What does the NNN lease not include? How are NNN lease rates figured? NNN lease versus an absolute lease Commercial real estate can be confusing! Can NNN lease rates change? How much does each tenant pay? And so on…. What would the total costs look like on an NNN lease? Having fewer bills will make managing the property easier overall, and it also means you'll need to have less cash on hand at any given time.
Ultimately, signing a lease on a triple net property comes with more responsibility. However, there are still some benefits that come with signing this type of lease agreement.
Often, landlords will offer certain incentives in exchange for the tenant taking responsibility for these costs.
For example, the landlord might offer a lower base rental rate or offer a credit toward tenant improvement. At the end of the day, the phrase "NNN" simply refers to a certain type of commercial real estate lease. A triple net lease is one where the tenant is responsible for paying the taxes, insurance, and any operating expense for the property. As with any contractual agreement, if you're thinking of signing this type of lease, make sure to read it over thoroughly and get your questions answered before signing on the dotted line.
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Podcasts Webinars Videos. View Memberships. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. A triple net lease NNN helps landlords reduce the risk of a commercial lease. A triple net lease is one of three types of net leases , a type of real estate lease where a tenant pays one or more additional expenses. Net leases generally include property taxes, property insurance premiums, or maintenance costs, and are often used in commercial real estate.
In addition to triple net leases, the other types of net leases are single net leases and double net leases. A single net lease requires the tenant to pay only the property taxes in addition to rent. With a double net lease, the tenant pays rent plus the property taxes as well as insurance premiums. A triple net lease, also known as a net-net-net lease, requires the tenant to pay rent plus all three additional expenses.
Rents are generally lower with net leases than traditional leases —the more expenses a tenant has to bear, the lower base rent a landlord charges. But triple net leases are usually bondable leases, which means a tenant cannot back out because the costs—especially maintenance costs—may be higher.
Single net leases , which are often referred to as a net lease or an "N" lease, are not as common in the rental world. In a lease like this, the landlord transfers a minimal amount of risk to the tenant, who pays the property taxes.
This means any other expense—such as insurance , maintenance and repairs, and utilities—are the landlord's responsibility. Tenants under a single net lease end up paying slightly lower rent than with a standard lease because of the added cost of property taxes. But a higher rental payment doesn't alleviate the landlord's responsibility for keeping these expenses up to date. For example, a tenant may miss or make late payments to the municipality, which means the landlord is on the hook for them.
That's why most landlords include the property taxes in the rent payments. They prefer that the payment passes through them so they know the taxes are paid on time and in the correct amount. Double net leases , which are also called net-net leases or "NN" leases, are especially popular in commercial real estate. In a lease like this, the tenant pays property taxes and insurance premiums in addition to the rent.
The base rent— payable for the space itself—is generally lower because of the additional expenses the tenant must bear. All maintenance costs, on the other hand, remain the responsibility of the landlord, who pays for them directly. In larger commercial developments with more than one space available to rent, such as shopping malls and expansive office complexes, tenants may have different square footage than their neighbors. So landlords typically assign taxes and insurance costs to tenants proportionally based on the amount of space leased.
Just like the single net lease, landlords should have the additional payments passed on to them, so they can pay them to the municipality and insurance company. Even though the tenant's lease includes these payments, the landlord's name is on the tax and insurance bill, meaning they are ultimately responsible.
By having the tenant pay these expenses directly to them, the landlord can avoid the problems associated with late or missed payments by tenants, which could result in extra fees. The triple net lease absolves the landlord of the most risk of any net lease. This means even the costs of structural maintenance and repairs must be paid by the tenant—in addition to rent, property taxes, and insurance premiums.
Because these additional expenses are passed on to the tenant, the landlord generally charges a lower base rent. When maintenance costs are higher than expected, tenants under triple net leases frequently attempt to get out of their leases or obtain rent concessions.
To preempt this from happening, many landlords prefer to use a bondable net lease. This is one kind of triple net lease that cannot be terminated before its expiration date. Furthermore, the rent amount cannot be altered for any reason, including unexpected and significant increases in ancillary costs.
Landlords may prefer to use a bondable net lease as tenants may try to get out of an expensive triple net lease. Triple net leases may increase the tenant's operational expenses, and they may be on the hook for deductibles on insurance policies. They may also be responsible for any damages to the property that are not covered by the insurance company. Most triple net leases are long-term leases lasting for more than 10 years, and they generally include concessions for rent increases. Triple net leases offer both investors and tenants some unique benefits.
However, there are some limitations to this type of commercial lease that both parties should consider before entering into a long-term triple net lease agreement. Although by-and-large, tenants in a triple net lease accept more financial responsibility than in other types of leases, they can also be advantageous for tenants in many ways.
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