What are Triple Net Expenses (NNN) and Why They Matter When Negotiating Your Lease

Elevate Growth Partners Triple Net Expenses

During any commercial real estate transaction, there can be a lot of confusing terms, vocabulary and industry lingo that gets thrown around from landlord, to broker to client. One of the primary ingredients of a lease are expenses that tenants are required to pay in addition to the base rent price. While there are several different types of net leases, we wanted to breakdown Triple Nets because these are the most common type within commercial real estate.

Triple net expenses austin texas | Elevate Growth Partners

BREAKING DOWN THE TRIPLE NET EXPENSES IN A NNN LEASE

The term Triple Net Expenses or “NNN” refers to 3 different categories of expenses:

◼︎ Taxes – These normally include real estate taxes, rental taxes and business taxes

◼︎ Insurance – This fee covers fire insurance and other potential extended coverage costs

◼︎ Maintenance – This can range from everything from:

  • Common Area Expenses like clean the property, including sweeping, trash removal, gardening etc.
  • Building Repairs (a portion this fee may be impounded to cover the cost of future large scale repairs, such as parking lot repaving, roof repair or landscape replacement)
  • Shared Utilities (usually power and water, but many include others)
  • Property Management Fees (the fee the management company charges to administer the property)

These three buckets are bundled together into this line item that is then added on to the quoted base rent price. This is why tenants will often see a much lower base rent price for triple net leases as opposed to gross leases. A Gross lease is the opposite of a Triple Net lease, where all the items listed above have been calculated out and estimated, then quoted as a single price. This puts more future risk and unknowns on the Landlord which is why they are not very common in commercial deals. There’s plenty of pros and cons with all types of leases, so it’s important to know to calculate them and how it can impact your monthly and yearly costs.

You can use our Commercial Lease Calculator below to play around with your space’s size, quoted rent prices and triple nets (which can also be referred to at times as “operating expenses” or “opex”) to help you build a budget or just have a better understanding for how triple net expenses impact the overall monthly and yearly cost of your future lease.

COMMERICAL LEASE CALCULATOR

HOW DO I KNOW IM GETTING A GOOD DEAL?

Sure triple net leases seem more favorable towards landlords and property investors, because they are. But in a highly ultra-competitive market with low inventory and high demand, that’s when having a talented broker who can negotiate on your behalf is paramount when finalizing the terms of this type of lease. There’s a multitude of different ways each of the ‘N’s’ can be negotiated, including the base rent price so it’s often good to be thoughtful in your counter-proposals.

Things that may be on the table for negotiating:

◼︎ base rent prices and yearly rate increases

◼︎ renewal and/or early termination options

◼︎ tenant buyout/subleasing

◼︎ obligations in regards to the insurance and maintenance

The bottom line is that Triple Net leases are in the industry standard when leasing long-term commercial space. But our philosophy is that knowledge is power and the more informed our clients can be when entering the space search process, the better.

We always recommend having your attorney review any legally-binding lease documents as we can not provide financial or legal advice. This post is intended only to educate and are the expressed opinions of the author.

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