Understanding the Difference Between Gross and Triple Net Leases
When it comes to renting an office space, there are two main types of leases you’ll come across: gross leases and triple net (NNN) leases. They might seem similar at first because the base rent could be the same, say $3,000 a month, and both might go up a little each year. However, there’s a big difference between them, especially in how extra costs are handled.
What Are Gross and Triple Net Leases?
Let’s start simple. If you have a gross lease, your monthly rent includes everything. This means that the landlord takes care of the building’s taxes, insurance, and maintenance costs. You pay one flat rate, and that’s it—no surprises.
On the other hand, a triple net lease has a twist. While you still pay your rent, some extra costs—like the building’s taxes, insurance, and maintenance—are passed on to you, the tenant. These costs can change, sometimes increasing by 3% to 5% in a year, even if your rent only goes up by 2%. So, you need to be ready for your budget to wiggle around a bit with a NNN lease.
Why Choose a Triple Net Lease?
You might wonder why anyone would pick a lease that could have extra costs. For landlords, it’s about stability. By passing these unpredictable costs to the tenant, they can keep their income more consistent. For tenants, despite the potential for extra costs, there’s a silver lining: you get more clarity on where your money is going and have some control over these costs based on how you use the space.
Making the Right Choice
Choosing between a gross lease and a NNN lease depends on what you’re comfortable with. Do you prefer a simple, all-in-one payment without worrying about extra costs? Or are you okay with a bit of unpredictability if it means you could potentially manage and understand your costs better?
In the end, while they might start looking the same, gross and NNN leases cater to different needs and preferences. Knowing the difference helps you make a smart decision that fits your business plan and risk tolerance in the world of commercial real estate.
Understanding your lease type with the guidance of a commercial real estate professional is crucial for negotiating a favorable lease agreement and avoiding unforeseen impacts on a business’s operations and finances.
At SterlingCRE Advisors, we are dedicated to providing our clients with the necessary insights and expertise to navigate the complexities of office real estate leasing. Our approach to fully comprehending the unique facets of each lease is reflective of our commitment to ensuring every client is well-equipped to make choices that align with their business strategies and goals.
