Commercial property leasing comes in various structures. Understanding them is crucial for landlords and tenants. Net leases stand out among these structures due to how they deal with property expenses.
In traditional leases, the tenant pays a fixed rent while the landlord handles most property-related expenses, like taxes, insurance and maintenance. However, in a net lease, some or all of these expenses are passed on to the tenant on top of their regular rent.
There are three primary types of net leases, each specifying which costs the tenant is responsible for:
Single net lease (N lease)
In this arrangement, the tenant pays the base rent plus property taxes. The landlord covers all other expenses like insurance and maintenance.
Double net lease (NN lease)
For this type of lease, the tenant pays the base rent and takes on two additional expenses — typically property taxes and insurance. The landlord is usually responsible for maintenance and other operational costs.
Triple net lease (NNN lease)
This is the most common type of net lease. The tenant pays the base rent and all three primary property expenses: property taxes, insurance and maintenance. Because tenants shoulder most of the property’s operating costs, the base rent in a NNN lease tends to be lower than in other lease types.
Net leases offer predictability for landlords
One of the main attractions of net leases for landlords is the predictability of income. Since many variable costs are passed on to the tenant, the landlord has a more consistent revenue stream.
Tenants get more control but shoulder more responsibility
For tenants, net leases can mean more control over the property, especially in a NNN lease where they handle maintenance. However, this control comes with managing and paying for these additional costs.
Net leases represent a trade-off. While tenants might bear more property-related expenses, they often benefit from lower base rents and greater control over their leased space. Both landlords and tenants should carefully consider the implications of a net lease to help ensure that it aligns with their commercial property goals.