Understanding NNN Leases: Costs & Calculations Explained

For most commercial properties a Triple Net (NNN) lease is the industry standard. It is a type of lease agreement in which the tenant is responsible for paying the base rent plus additional costs associated with the operation of the property. When calculating your total rent cost on a NNN lease you need to add together the base rent and NNN to get your gross cost.  

Here is a quick example of how to calculate the costs.

Keep in mind most commercial leases are also advertised on a per square foot per year basis.

Square footage: 1,000 square feet

Base Rent: $20.00 per square foot

NNN Expenses: $10.00 per square foot

$20.00 (base rent) + $10.00 (NNN) = $30.00 Gross rent

$30.00 (Gross rent) x 1,000 (square footage) = $30,000 per year

$30,000 per year / 12 months = $2,500 per month

Another aspect to keep in mind with a NNN Lease is that the NNN cost can and often do adjust each year based on the actual expenses of the building.  Generally, the Landlord will do a reconciliation of the NNN expenses in quarter one of each year. They will then either reimburse or bill you, depending on the difference between the NNN you paid the previous year and the actual building expenses. At that point the NNN payment for that year will adjust to the new estimate.

What are the three "nets" in a Triple Net Lease:

1. Property Taxes (N1): The tenant is responsible for paying a portion or all of the property taxes associated with the leased space.

2. Property Insurance (N2): This typically includes coverage for the building and may include liability insurance. This does not include the Tenant’s personal property and Landlords often require tenants to hold insurance policies in addition to those in the NNN.

3. Common Area Maintenance (CAM) (N3): CAM charges cover the costs associated with maintaining and operating common areas of the property, such as landscaping, snow removal, parking lot lighting, etc. Generally, this is any element that is shared among the building tenants. Often trash and water services are also included in the CAM.

Generally NNN does not include utilities for electric, gas, phone or internet. It also often does not include costs for in suite janitorial. However, there are exceptions to this. It is a good idea to ask the Landlord to provide you with a breakdown of the NNN expenses for the current year and historical numbers for the last few years. This allows you to get a better idea of the costs on the building and how they have changed over time.

Another aspect of Triple Net Leases, the landlord's responsibility is often limited to the structural elements of the building. Most of the time, tenants are responsible for all maintenance of the space individually or those costs are included in the NNN expenses.

NNN leases provide certain advantages for landlords, as they shift a significant portion of the operating and ownership costs to the tenant. Tenants should carefully review the terms of the lease to understand the extent of their financial responsibilities and ensure that they are comfortable with the associated costs.

If you find yourself in need of further assistance tailored to your specific circumstances, feel free to reach out. I'm available to review your lease and provide guidance. Whether you're at the initial stages of the leasing process or navigating through it, I'm here to offer support and expertise across all aspects. Don't hesitate to get in touch—I'm more than happy to help.