When researching spaces for lease, you may have noticed terms like "NNN", Triple Net, Gross, Modified Gross in association with a PSF (per square foot) rate. Here's a quick rundown on what those terms mean:
NNN / Triple Net / Net Net Net: This type of lease is one in which the tenant, in addition to base lease rate is to pay all operating expenses of the property such as RE taxes, building insurance and CAM (Common Area Maintenance). Line items under CAM generally include snow removal, landscaping and grounds maintenance, common area cleaning such as the lobby, restrooms etc.
The Landlord should have projected operating expenses costs. Your broker should also ask for actual operating expenses for the prior 3 years so you can see the operating expense history. Discuss what should be included in operating expenses.
Capital Improvements such as roof replacements or parking lot repairs are not operating expenses, though some Landlords will try to pass the expense onto the Tenant. Be sure you ask for the full list of operating expense items before you commit.
NNN charges are generally billed separately by the Landlord to the Tenant periodically. It could be monthly or quarterly or as the bills come in.
Gross: A lease in which all expenses associated with owning and operating the property are paid by
the landlord. Gross lease rates will generally be higher than NNN lease rates as the building and operating expenses are included in the rate. Utilities may or may not be included, be sure to ask. If you are responsible for your own heat, find out the specifics as to whether it's oil / gas etc and get the costs associated for the last 3 years so you can plan your budget.
Modified Gross / Modified Net: These terms can mean just about anything. The landlord may want the asking rate plus real estate taxes. Or the asking rate plus CAM. Or the asking rate plus electric, etc.
Don't be afraid to ask questions and obtain expense history so there are no surprises. I find it helpful to create a spreadsheet with the expense details of the 3-4 buildings my clients are considering so they can accurately compare the costs and aid them in making an informed decision.
Don't hesitate to let me know your additional thoughts.
Be well,
Rhonda