When you are negotiating your lease it's always a good idea of find out what the NNN were for the last years. Austin Tenant Advisors can not only help you find the right commercial space for your business, we can also help reduce your stress by educating you on the process, understanding rental rates, and negotiating on your behalf with landlords, owners, and listing agents.
Receive a free list of available spaces custom to your needs complete with lease rates, photos, and floor plans:. It is hard for me to come to grips with this as most of the triple net leases I have seen include some form of capital expenses. One of our tenants even has an NNN lease where they are not only responsible for all the costs on their unit, but they also pay them and arrange for all the repairs and maintenance!
Your best bet is to read the lease and make sure you know what it says, not assume that an NNN lease is the same in every case. One tricky part with NNN leases is that you cannot predict exactly what the expenses will be. Snow removal could be needed one time in one year or ten times the next year. The cost of management could increase, as could the cost of many things.
The triple net costs are not usually set every year but flexible. So while our NNN costs are much higher than we are charging the tenants, we cannot increase those costs the entire amount.
Each lease will have a different amount built in that the NNN costs can increase and some may not have any restrictions. Something else that must be considered is what each tenant pays for NNN costs on a multiple-tenant building. On my big building, we have six tenants who share the property.
How do we know how much each tenant pays? The way the leases were structured when we bought it was each tenant paid their share based on the percent of square feet they occupied. On top of the NNN costs and the base rent fees, the tenants pay their own utilities as well. Hopefully, the building has separate meters, or that can get tricky as well! Now that we know what is included on an NNN lease, or at least have an idea of what could be included on some, well…maybe not included on others….
The rent on a commercial building is often calculated using per-square-foot numbers. For example:. As you can see, there is no clear-cut NNN lease.
They can all be different regarding what costs are or are not included. NNN leases can be great for both parties or horrible for either party based on these factors and many more. Some of my properties use NNN leases and some use gross leases. They both have advantages and disadvantages for both parties. NNN leases are common on commercial real estate, but they are not the only type of lease used.
There are many types of leases, and they have slightly different definitions based on who you talk t,o but here are the basics. This is very similar to the NNN lease, but only property insurance and property taxes are paid by the tenant. The maintenance is covered by the landlord, but the tenant still pays the utilities in most cases.
The tenant may pay a portion of the taxes based on their share of the building but not maintenance costs or insurance. The tenant pays for everything and may even be responsible for taking care of everything as well. How is this figured? The landlord uses the amount of annual costs and divides it by the total number of rental square footage in the building. The landlord includes the totals for property taxes, insurance, maintenance and common area upkeep and then divides the sum by 12 to arrive at a monthly cost.
So, what is gross lease? Gross rate or full-service rate includes everything; taxes, insurance, maintenance, in the total lease rate. This means you will pay one lump sum for rent, from which the landlord pays his expenses. On the gross lease, the landlord pays all or most expenses associated with the property.
This includes taxes, insurance, and common area maintenance out of the rents received from tenants and could also include the utilities and janitorial services. This is different from a full-service lease structure, in which the tenant agrees to pay a predetermined rate that includes operating expenses. On the other hand, because operating expenses can vary year to year, it can be harder to budget for your annual rental expenses.
In addition to your rental rate and operating expenses, there are other elements of a NNN lease that can affect your overall financial obligation. A tenant improvement TI allowance is a type of incentive offered by landlords to encourage tenants to sign a lease. Usually, the landlord offers the tenant a dollar amount per square foot to build out their office, retail or industrial space.
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