When you rent an apartment or a house, there usually aren’t too many negotiations involved – partially because there are a lot of regulations in place to make sure that you are treated fairly by your potential landlord.
When you’re renting a commercial space, however, just about everything is negotiable – and you have to be savvy. Since you’re in business, you’re expected to have a better understanding of the financial issues involved and look out for yourself. That makes it important to understand things like the difference between net, double net and triple net leases.
What’s a net lease?
A net (N) lease is pretty simple: As the tenant, you would pay a monthly rent plus the property taxes. All the other expenses associated with the property – including the insurance, maintenance costs and building repairs – fall on the landlord. Tenants usually prefer these leases (when they can get them) because they’re the most predictable.
What is a double net lease?
Double net (NN) leases are very common. With an NN lease, you would probably pay a lower basic rent, but you would also be responsible for both the property taxes and the property insurance. If you rent part of a larger building, like an office in a strip mall, you may pay taxes and insurance that’s prorated according to the square footage you control – and the landlord still keeps all the repair and maintenance costs. This type of lease does a good job of balancing the interests of both the tenant and landlord.
What’s a triple net lease?
Triple net (NNN) leases are a landlord’s friend because they basically put all the costs onto the tenant’s shoulders. In addition to rent, you would be obligated to pay the property taxes, insurance costs and all the maintenance and repairs – even big ones. That can lead to unpredictable expenses that can become very difficult for a tenant to manage. If you elect to go into this kind of rental agreement with your landlord, you need to have both eyes open and make sure that you are prepared for emergencies.
Given the complexities involved and the extent of what is at stake, it’s always wise to make sure that you have experienced legal guidance when you’re taking on a commercial lease.