Commercial Real Estate 101: Demystifying Triple Net (NNN) Leases

  📍 Hey everybody, Joseph Gozlan with Eureka Business Group, and today I just wanted to talk about what is a triple net lease. Everybody ask me all the time. It’s Hey, I saw the rent is $20 plus NNN, $30 plus NNN, $15 plus NNN, and sometimes they see plus NNN three Ns, and they’re asking what does it mean?

Triple net lease or a net lease is basically a lease that is quoted at a base rent. Then on top of that, you’re gonna have to reimburse the landlord for the portion of the expenses that they pay that are uncontrollable. So all the time you’ll see NNN triple net means. The first one would be property taxes.

The second end is for insurance, and the third is for common area maintenance. Or sometimes you’ll see CAM. That really means that. We don’t know what it’s gonna be every year, but we’re gonna tell you ahead of time this is what it is this year and next year. It might be adjusted up or down.

Depending on what the charges were in the previous year and how we expect them going next year. So why is everybody doing that, and why is it a good thing sometimes? . So if you’re leasing in a shopping center and that shopping center has a parking lot, it has exterior lights, it has landscape, all these things have to be maintained, have to be taken care of.

If you are not paying for that and the tenants don’t pay for that, then the landlord is not really motivated to do that expense. So you want that consideration off the mind of the shopping center owner to make sure that everything is taken care of. Because a property that is run down, a property that has potholes everywhere in the parking lot, a shopping center that is not lit at night or the landscape is overgrown and looks disgusting, is not very welcoming to your client, so you want everything to be taken care of, and you don’t want the financial consideration of a landlord that will not do it or will hire people that will do a really bad job at it. So again. Triple Net stands for property taxes, insurance, and common area maintenance.

We talked about the common area maintenance. What it means, it’s all the expenses that everybody needs to share. Sometimes it’s the water bill might be included in that. Sometimes it’s pest control, sometimes it’s waste management. It’s a lot of different things that every shopping center is gonna be a little bit different.

That’s why it’s always important to ask, other than my base rent, what is that triple net charge? Usually it will also be quoted per square foot, just like your base rent. So you might see a $21 plus $4.20 cents in triple net. It’s also very important to ask that ahead of time because sometimes.

Depending on where you are and what’s the status of the property, those charges can be up to 30-40% of the base rent. We’ve seen properties that had $22 per square foot on base rent and another $12 on the triple net, which is insane. It’s over 50%. So always ask ahead of time and always understand that these are variable charges.

So for example, as a shopping center management company, sometimes we help our clients shop for better insurance quote, and if we get a better quote and we were able to lower the insurance expense this year, then everybody’s triple net charges actually went down. Here in Texas, we protest our property taxes every year and if we were successful and lower the property taxes, everybody’s triple net go down, if we keep everything well maintained and the shopping center doesn’t have a lot of expenses this year.

Everybody’s triple net goes down. So being in a professionally managed shopping center is also a very value add for you as a tenant to make sure not only that, everything looks great, but also the fact that the triple net charges are not exponentially growing just because nobody cares.

So you ask yourself, do I have to reimburse all the property taxes for the landlord? No. You only reimburse them for the portion of the property taxes that correlates with a portion of the square footage your space takes out of the entire shopping center.

For example, if the shopping center is 10,000 SF and your space is 2,000 SF out of that 10,000 SF, then you are only responsible for 1/5 of the property taxes, 1/5 of the insurance, and 1/5 of the common area maintenance charges.

So that’s really what it is. Always make sure you ask ahead of time, is it included or not Included in the rent you were quoted. And if the triple net charges are not included, then what are they this year? So you can understand what your actual rent is gonna be at the end of the month and prepare for that and account for that in your business plan. That’s it for today. I hope it was clear. If you had any other questions about triple net charges, please leave them in the comments below.

I’ll be happy to answer and reply to all your questions. If you have any other questions about retail and commercial real estate in the DFW market, feel free to reach out. I’m Joseph with Eureka Business Group, your RETAIL NAVIGATOR for the Dallas Fort Worth Market.