Not a week goes by that I'm not asked what a triple net commercial (NNN) lease is. Business owners who are searching for a commercial property will come across this type of lease structure whenever they are searching for a new space to lease in and around the Chicagoland area. Recently, these types of lease structures have become more and more popular amongst commercial landlords in Chicago, so make sure you keep reading.
A triple net lease, also commonly abbreviated as “NNN”, is a type of commercial lease structure that separates the rent from the taxes, common area maintenance (CAM), and insurance. Whereas, a more traditional type of lease, which many tenants are used to, is known as a gross lease or modified gross lease. For these leases, there is one rental price number that includes your portions of taxes, CAM, and insurance within your monthly rent. The NNN lease makes you responsible for your monthly rent plus the landlord's aforementioned costs tied to that specific building. You will typically pay rent and an estimated breakdown of these costs, and when the building owner reconciles their actual costs, they will send you back any overages paid or invoice you for any shortages. Very rarely do we see refunds to tenants.
When you are looking for commercial space to lease, the advertised rental rate is much lower on buildings with a NNN lease. However, once the expenses are added up, the total amount a tenant pays is comparable to other buildings in the marketplace. The challenge is to make sure you are aware of when these items are due, and budget for any unexpected expenses or high increases in taxes and insurance.
Keep in mind, whether it's a NNN, gross, or modified gross lease, you are paying the full amount of these expenses. The only difference is the way the lease is structured and the convenience with how you pay them. I will talk about the pros and cons of a NNN lease structure in an upcoming blog.
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