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.

How to Calculate NNN Costs

Keep in mind most commercial leases are also advertised on a per square foot per year basis. Here is a quick example:

• 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 × 1,000 sq ft = $30,000 per year

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

Another aspect to keep in mind with a NNN Lease is that the NNN cost can and often does adjust each year based on the actual expenses of the building. Generally, the landlord will do a reconciliation of the NNN expenses in Q1 of each year, then either reimburse or bill you depending on the difference.

What Are the Three "Nets"?

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 — landlords often require tenants to hold additional insurance policies.

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. Often trash and water services are also included in the CAM.

What NNN Usually Does Not Include

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.

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.

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.

If you find yourself in need of further assistance, feel free to reach out. I'm available to review your lease and provide guidance at any stage of the leasing process.