Lease Types: Triple Net vs Gross

The following describes lease types widely used in office real estate and should be studied by companies looking to renew or relocate.  

           1) In Triple Net (NNN) leases the base rent typically covers only debt service and principal, similar to a mortgage payment with the tenant paying “additional rent” for all charges incurred in the commercial space operation. Commonly used for single-tenant buildings and multi-tenanted warehouse/flex buildings.

           2) In Full-service Gross leases the tenant pays one rental amount which includes everything. These leases make sense for smaller tenants wishing to avoid the nuisance of subsequent “additional rent” invoices, especially when signing a short-term lease or subleasing space because they avoid the administrative headache of determining what the subtenant owes.

           3) Modified Gross leases assess payments in a manner similar to full-service gross leases except the tenant incurs increases of operating expenses and taxes over a base year, typically the first year of occupancy. These leases protect the landlord from increased costs and erosion of their return of investment, putting the risk of higher taxes, utilities, maintenance and insurance costs squarely on the shoulders of the tenant.      

           4) Modified Gross plus Electric leases, used in 80 percent of multi-occupant office buildings, work the same way as #3 except tenants assume electric consumption expenses within their space.