If you’ve been looking into commercial property investing, I am sure you’ve spotted the terms “Net”, “Triple Net”, and “Gross” at some point. It’s all very confusing. What do these terms mean?
A “Net Lease” is simply a lease where the tenant pays one or more of the expenses that pertain to the property. The expenses that the tenant will be responsible for should be clearly defined in the lease. Sometimes leases are somewhat vague with respect to the amount of liability that the tenant and landlord are responsible. As they say, good fences build good neighbors, so the better that these expenses can be defined, the more likely it is that the tenant/landlord relationship will be a harmonious one. Keep in mind that with most leases, the tenant will also be responsible for property taxes.
A “Single-Net Lease” typically only requires the tenant to pay a single expense, typically Property Taxes. The remainder of the liability for other expenses are the responsibility of the property owner.
With a “Double-Net Lease”, the tenant is responsible for paying the Property Taxes as well as the Insurance Premium. All other expenses are the landlord’s responsibility.
With a “Triple-Net Lease”, sometimes known as a “NNN Lease”, most of the expenses risk is transferred to the tenant as opposed to the landlord. Not only is the tenant on the hook for Property Taxes, Insurance, and Sales Taxes, but repairs and maintenance as well. Most Triple-Net Leases do not limit the liability of the tenant with respect to repairs and other expenses. This absolves the landlord of most liability and places it squarely on the shoulders of the tenant.
With a “Gross Lease”, the tenant simply pays a flat rent plus the appropriate sales taxes. The landlord covers the rest. This, obviously, is the best for the tenant.
Commercial leases are, indeed, quite confusing for those new to the game, but with the right guidance, you can make owning commercial property a very lucrative.