Net lease

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Also called a net-net (NN or double-net) or net-net-net (NNN or triple-net) lease, the net lease is most commonly used for commercial and industrial properties. The key element with the net lease is that in addition to paying a base rent, the tenant must also pay a portion of the building's operating expenses, which may include maintenance, taxes and insurance.

With multi-tenant facilities, the maintenance expenses are typically called "CAM," or common area maintenance expenses. For a small strip mall, for example, CAM may cover parking repaving, repair, cleaning, snow plowing and upkeep, as well as building washing and cleaning. For an office building, CAM may also include heating and cooling costs for the lobby and hallways, common area janitorial service, building security systems and landscaping.

The number of operating expenses (maintenance, taxes and/or insurance) that the tenant must pay in addition to the base rent determines the lease name.

  1. Net lease. The net lease charges one of the above operating expenses, usually CAM or taxes.
  2. Double-net lease. The NN or net-net lease charges two of the above operating expenses, usually the CAM and either the taxes or insurance.
  3. Triple-net lease. The best lease for the landlord is the triple-net, which passes on a prorated portion of all of the property's operating expenses to the tenant.

For example, Acme Personal Services leases office space in a multi-tenant building. The 2,000 square feet of office space it rents is 15% of the total leasable space in the building, which is now completely occupied. Acme's "triple-net" lease charges them $6 per square foot per year, plus 15% of the CAM, property taxes and insurance (charged quarterly). So, Acme's base rent is $12,000 per year (or $1,000 per month); and every quarter, it receives an additional bill for its portion of the CAM, real estate tax and insurance.

The net lease format can also be combined with the percentage or variable lease format. Commercial leases get very complicated. For more details, see the "Commercial Leases" article.

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