What is a Triple Net Lease?

Knowing what questions to ask before signing a lease keeps tenants knowledgeable
and owners true

If you’re shopping for new space for your business, chances are you’ve seen a variety of different lease structures. From Full Service to Modified Gross to NNN (Triple Net), and depending on what your lease structure is, $12 per square foot can mean many different things.
 
So what are NNN fees, exactly? They are the landlord’s actual operating costs for the building, broken down by your proportionate share of the rentable space in the whole building. For example, if you lease 1,000 square-feet out of a 10,000-square foot building, each year you are expected to pay one-tenth of the operating expenses of the building.
 
So what do ‘operating expenses’ really mean?

Each of the ‘Nets’ stands for a different component of the operating expenses. The first is taxes, meaning the property taxes for the building. The second ‘Net’ is for insurance – meaning the building owners insurance policy (this is different from the renter’s policy you are required to carry directly). The last ‘Net’ is more of a catch-all, and encompasses all the other operating expenses required to maintain the building. This often includes expenses for the ‘common areas’ of the building such as landscaping, parking lot maintenance, exterior lighting, etc. It is very important that prior to signing a lease you find out exactly what expenses are included in the NNN, and how much the fees are for the current year.
 
I say ‘the current year’ very specifically, and that’s because NNN fees are necessarily tied to the actual expenses for the building in any given year. What many tenants don’t realize, however, is that they are entitled to request a breakdown of the expenses at least once per year. Many landlords fail to update or accurately track their NNN expenses each year (called doing a ‘CAM reconciliation’). But unless a tenant knows to request the CAM reconciliation, you have no way of knowing what the actual operating expenses are for the building.

So the major takeaways from NNN fees is this: Before signing a lease, make sure you ask what is specifically included. And if you’re already in a NNN lease, make sure you request the annual CAM Reconciliation at least once per year as is your right. NNN fees ought not be a profit center for a landlord, and tenants can do their part to keep their landlords true by being knowledgeable and engaged in the administration of their lease contracts.

Cameron Wilson is the director of brokerage services and business development at Bradley Scott.