Full Service/Gross Lease VS. Triple Net (NNN) Lease
Understanding different types of commercial real estate leases is crucial for both landlords and tenants. Two common types of leases that often arise in negotiations are the Full Service/Gross Lease and the Triple Net (NNN) Lease. Let’s explore the main differences between these two lease structures and provide examples to illustrate their respective features.
Full Service / Gross Lease
A Full Service/Gross Lease is a comprehensive lease agreement where the tenant pays a fixed monthly rent, and the landlord assumes responsibility for most, if not all, operating expenses associated with the property. These operating expenses typically include property taxes, insurance, maintenance, and utilities. In essence, the tenant enjoys the convenience of a predictable monthly payment, as all the additional costs are absorbed by the landlord.
– Example
Imagine a tech company leasing office space in a commercial building. The agreed-upon monthly rent is $5,000 under a Full Service/Gross Lease. In this scenario, the landlord would cover property taxes, insurance, maintenance, and utilities. The tenant only needs to focus on paying the $5,000 monthly rent without worrying about fluctuating operating costs.
Triple Net Lease (NNN)
On the flip side, a Triple Net (NNN) Lease places a significant portion of the property’s operating expenses onto the tenant. In a Triple Net Lease, the tenant is responsible for paying not only the base rent but also additional costs such as property taxes, insurance, and maintenance. This type of lease gives tenants more control over property management and maintenance decisions.
– Example
Consider a retail space leased by a fashion retailer in a shopping mall. The base rent is $8,000 per month, and it is a Triple Net Lease. In this case, the tenant would be responsible for covering property taxes, insurance, and maintenance costs on top of the base rent. The total monthly payment would vary depending on these additional expenses.
Main Differences
1.) Responsibility for Operating Expenses:
– Full Service/Gross Lease: Landlord covers most operating expenses.
– Triple Net (NNN) Lease: Tenant bears the brunt of property-related costs.
2.) Predictability of Costs:
– Full Service/Gross Lease: Fixed monthly rent, with predictable costs.
– Triple Net (NNN) Lease: Costs can vary, making monthly payments less predictable.
Choosing between a Full Service/Gross Lease and a Triple Net (NNN) Lease is a strategic decision that depends on the needs and preferences of both landlords and tenants. While a Full Service/Gross Lease offers simplicity and predictability, a Triple Net Lease provides tenants with more control and transparency over operating expenses. Understanding these lease structures is crucial for making informed decisions in the complex landscape of commercial real estate.
For more helpful information, see our quick guide to leasing commercial property. What’s a Modified Gross Lease? Click here to read more!
Disclaimer: The information provided in this blog post is for general informational purposes only and should not be considered as legal, financial, or professional advice. Commercial real estate transactions and lease agreements involve complex legal and financial considerations. Readers are encouraged to seek the guidance of qualified professionals, such as real estate attorneys or financial advisors, to address their specific situations and ensure compliance with applicable laws and regulations.
