If you’ve searched for commercial real estate space, you know that understanding how the lease is structured is critical to properly evaluate your options. If you’re not careful, you can quickly begin comparing apples to oranges. With all the different types of lease structures: Gross Lease, Net Lease, Double Net (NN) Lease, Triple Net (NNN) Lease, Absolute Net ((Bonded) Lease, etc., it’s critical to confirm how the landlord defines the lease for the space they are offering. Among the different lease types, Triple Net and Absolute Net Leases are most often confused.
In a Triple Net (NNN) Lease, the tenant is responsible for paying for all costs related to: 1) property taxes; 2) maintenance; and 3) insurance, hence the “triple net.” However, the landlord is responsible for taking care of the roof and structure. The tenant must also take on the responsibility of major expenses, such as HVAC and roof repairs, keeping the operating costs lower for the landlord. Parking lot replacement is often a subject of discussion and is typically a topic of negotiations.
Conversely, in an Absolute Net Lease, the rent is absolutely net under all circumstances. Typically, it’s not terminable by the tenant and rent abatements are not permitted.
For example, a tenant must:
- Rebuild the leased premises after a casualty, regardless of the adequacy of insurance proceeds.
- Continue paying rent after a partial or full condemnation of the leased premises.
An Absolute Net Lease would typically be used in a sale leaseback arrangement.
Regardless of the textbook definition for any lease structure, it’s important to confirm how the landlord defines the lease they are advertising prior to submitting an offer.
If you need assistance evaluating lease options, please contact us.