Net net net, triple-net, NNN: what does it mean? It’s a question we field a lot – and for good reason.
Most tenants are experts in their field, whether that’s insurance, retail, coffee-making, or something else. But lease terms like NNN (otherwise known as net-net-net or triple-net) are out of their wheelhouse. Many landlords are also not 100% clear on what a NNN lease is, either.
Since NNN leases are commonly used in the commercial real estate industry, it’s important to understand what you are signing, whether you are a tenant or a landlord.
That’s where we can step in to help explain the jargon.
Triple-net, or a NNN lease, is a lease agreement in which the tenant is responsible for paying all or a portion of the property’s operating expenses in addition to the rent. This includes property taxes, insurance, and maintenance costs. In a NNN lease, the landlord is only responsible for providing the property and collecting rent (though, usually, the landlord is responsible for the structural integrity of the building). The landlord doesn’t pay for utilities that the tenant uses, nor do they pay the taxes on the property, the insurance, or things like snow removal and landscaping expenses.
The advantage of a NNN lease for the landlord is that they relinquish most or all of the responsibility of managing the property. For the tenant, the advantage is that they have more control over the property’s operating expenses and the vendors used for maintenance, and can shop insurance for the best rates. Depending on the situation and the local market, tenants can negotiate with the landlord to determine who is responsible for which expenses.
Are there alternatives to a NNN lease?
An older style of commercial lease was known as a “Gross” lease in which the tenant only paid rent and the landlord paid for the building expenses. Gross leases are rare. Those that we see are usually tied to an old lease, are part of a family business, or are in a building with irregular lease structures to accommodate for the age or condition of the building.
For tenants, the lease structure is usually out of their control and determined by the landlord. Some landlords may offer incentives or a modified NNN lease to fill their space if they are having a hard time securing a tenant. However, in Montana’s competitive commercial markets, that’s less likely to happen.
In every case, it’s important to review lease terms with your broker, especially as different markets use differing terminology for common lease components.
For more insights on leasing commercial space in Montana, contact Casey Rose, CCIM.