Defining NNN

First of all, NNN stands for "triple net lease." A triple net lease is a type of commercial lease structure where the lessee (the tenant) is responsible for covering certain costs associated with operating the property in addition to paying base rent. These costs usually fall into three categories: real estate taxes, property insurance, and operating expenses. 

To break it down even further, when you sign a triple net lease, your monthly rent is typically broken down into two distinct components: the base rent, and the NNN charge. The base rent refers to the stated monthly rent on a commercial lease, and is the minimum amount that the tenant will be charged in rent each month. Meanwhile, NNN costs are an additional charge meant to cover the three types of fees we mentioned earlier. 

How are NNN charges calculated?

In a commercial lease, both the base rent and any NNN expenses are calculated using a flat cost per square foot. Let's say you're leasing a 1,000-square-foot office space with a base rental rate of $25 per square foot and an NNN rate of $10 per square foot. 

• Base Rent: 1,000 SF x $25 per SF = $25,000 per year or $2,084 per month
• NNN Expenses: 1,000 SF x $10 per SF = $10,000 per year or $834 per month
• Total Lease Rate: $35,000 per year or $2,917 per month

You can see that the NNN charge will be an additional cost on top of the base rent. In this example, it comes out to $834 per month. 

How does a triple net lease differ from other types of commercial leases?

We’ve gathered the alternatives to give you context below.

• Gross Lease: Also known as a "full-service lease," a gross lease simply charges the tenant base rent. With this type of lease, the landlord agrees to cover nearly every operating expense necessary to run the building, including maintenance fees, property taxes, and building insurance.
• Modified Gross Lease: A modified gross lease is a middle ground between net leases and gross leases. Here, the tenant usually agrees to pay a base rental rate, utilities, and a portion of their NNN costs. The details of what is paid by each party will vary according to the individual lease, but typically the tenant's NNN charge is based on the percentage of the building that they occupy.
• N Lease: An "N lease" is also known as a "single net lease." With a single net lease, the lessee is responsible for paying their base rent and the real estate taxes. Here, the landlord is responsible for paying the property insurance as well as any operating expense for the entirety of the lease term.
• NN Lease: As you might be able to guess, an "NN lease" is also known as a "double net lease." In a double net lease, the tenant is responsible for paying the property taxes and building insurance while the landlord is responsible for paying all other expenses.

Conclusion

The triple net lease (NNN lease) is a common lease structure in commercial real estate, in which the lessee is responsible for paying certain expenses, such as real estate taxes, property insurance, and operating expenses, in addition to their base rent. This type of lease can be beneficial for investors as it allows them to have more control and predictability over their operating expenses. However, keep in mind that a triple net lease is just one type of commercial lease and there are other options available, such as gross leases, modified gross leases, N leases, and NN leases. Each type of lease has its own unique set of responsibilities for both the landlord and the lessee, and it's important to understand these before entering into a lease agreement.

In the end, it's crucial to have a clear understanding of the terms and conditions of any lease you enter into, as they can have a significant impact on your bottom line. NNN leases, while they may seem daunting at first, can be a great option for investors looking for more control and predictability in their operating expenses. With the right information and some careful consideration, you can find the lease structure that works best for you and your investment goals. 

Hopefully this information has helped you demystify the world of commercial real estate and NNN leases. Remember, when it comes to real estate, knowledge is power!

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