
Let’s break down the key differences between these common commercial lease types:
Triple Net (NNN) Lease:
- Tenant Responsibilities: In a NNN lease, the tenant is responsible for paying the base rent, plus their proportionate share of all operating expenses. These typically include:
- Property taxes (N)
- Property insurance (N)
- Common area maintenance (CAM) (N) – This covers costs like landscaping, snow removal, parking lot maintenance, etc.
- Landlord Responsibilities: The landlord is primarily responsible for the structural integrity of the building and major repairs.
- Benefits: NNN leases often have lower base rents since the tenant assumes most of the operating costs. This provides more predictability for tenants as they know their expenses upfront.
- Considerations: It’s important for tenants to carefully budget for the additional NNN expenses, which can fluctuate.
Modified Gross Lease:
- Shared Responsibilities: This is a hybrid model where the landlord and tenant share some of the operating expenses. The exact split varies based on the lease agreement, but typically the landlord covers the property taxes and insurance, while the tenant pays for CAM and utilities.
- Benefits: Modified gross leases offer a middle ground between NNN and full-service leases, providing a balance of cost predictability and expense sharing.
- Considerations: It’s crucial to review the lease carefully to understand which expenses each party is responsible for.
Full Service Gross Lease:
- Landlord Responsibilities: In a full-service lease, the landlord covers all operating expenses, including property taxes, insurance, CAM, utilities, and often even janitorial services.
- Tenant Responsibilities: The tenant pays a single, all-inclusive rent amount.
- Benefits: This offers the most predictability for tenants as their costs are fixed. It’s a popular option for businesses seeking simplicity and wanting to avoid the hassle of managing multiple bills.
- Considerations: Full-service leases typically have higher base rents to account for the landlord covering all the expenses.
Key Takeaways:
- NNN: Tenant pays base rent + ALL operating expenses (taxes, insurance, CAM).
- Modified Gross: Shared responsibility, with the landlord typically covering taxes and insurance and the tenant covering CAM and utilities.
- Full Service: Landlord covers ALL operating expenses (taxes, insurance, CAM, utilities, janitorial). Tenant pays a single all-inclusive rent.
Choosing the Right Lease:
The best lease type depends on your business’s priorities:
- NNN: Best for businesses that want more control over their expenses and don’t mind the added responsibility of managing operating costs.
- Modified Gross: Good for businesses seeking a balance between cost predictability and expense sharing.
- Full Service: Ideal for businesses that prioritize simplicity and fixed costs, even if it means paying a higher base rent.