NNN vs. Gross vs. Modified Gross Leases
The rent number in a lease means very little until you know what it includes. Two spaces at $40 per square foot can cost a tenant very different amounts.
NNN (triple net)
The tenant pays base rent plus its share of three costs: real estate taxes, building insurance, and common area maintenance (CAM). This is standard for retail, restaurant, and industrial.
In the LOI, ask for an estimate of NNN charges for the first year. Tenants should push for a cap on controllable CAM increases, often 4% to 6% per year. Also ask what is excluded, like roof and structure replacement, management fees above a set percent, and the landlord's capital costs.
Full service gross
The rent includes taxes, insurance, and operating costs. This is common in office buildings. The landlord is not absorbing cost increases forever, though. Most office leases use a base year. The tenant pays its share of any increase in costs above the base year amount.
Ask for the base year to match the first full year of the lease, so you are not paying for increases from before you moved in.
Modified gross
This is anything in between. A common version: rent includes taxes and insurance, and the tenant pays its own utilities and janitorial. Spell out every cost in the LOI, because "modified gross" means different things to different landlords.
Comparing deals
To compare an NNN space to a gross space, add the NNN estimate to the base rent. A $40 NNN deal with $12 in charges costs about $52. That is more than a $48 gross deal.
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Other guides
This guide is general information, not legal advice. Deal terms vary by market and by deal.