What is a NNN Lease?
Updated: Apr 12, 2018
So, what are all those N’s about? Odds are, if you’re not active in the commercial real estate market day in and day out, you find yourself asking that question when you see a listing that says something like: prime retail space available at $20 PSF NNN - the best thing in the neighborhood since sliced bread.
A fair amount of my clients are startup businesses who are looking for that first new location to open up shop where they can work their dream. In the early stages of our site search together, we’ll often come across listings that state it’s Triple Net or NNN. Ninety-nine percent ask what that means.
So, for all of you out there searching the commercial real estate marketplace and discovering listings with those three amigos of N’s, here’s what you should know.
The ‘Net, Net, Net’ (NNN), AKA, the ’Nets’, or the ‘Pass-thrus’, is a type of a lease usually utilized for a multi - tenant commercial building. More often than not, you’ll find it associated with retail use buildings, though, regardless of the commercial real estate type, the nets are meant to capture additional costs to the property shared pro rata (that’s Latin for your share relative to the whole) amongst those who occupy the real estate along with you.
Breaking it Down
· N(1) - Taxes for the property - landlord takes the total amount of taxes each year, splits them proportionately amongst the tenants and extrapolates out to a square foot value relative to the amount space you take up.
· N(2) - Common Area Maintenance (CAM) – Somebody has to vacuum, put salt on the sidewalks and mow the lawn. And, that’s not free. The landlord in this case, is providing services like janitorial, landscaping, snow removal and general maintenance to the property. Same drill - overall cost for services is broken down pro rata and spread across each tenant relative to their respective square footage consumption.
· N(3) - Insurance - You'll still need your own business insurance, dram shop, E&O, etc... This is property insurance and in the Triple Net lease format you're paying your share (that Latin term again).
The Nets will equate to a price per square foot number that will be in addition to your base rent number. Using our aforementioned example, rent metrics would look something like this:
$20.00 per square foot (PSF) NNN
Nets = $7.50
Total rent PSF = $27.50
Let's pretend. Say you're looking to rent 3,000 square feet. Here's the math:
3,000 SF x $27.50 = $82,500 (annual rent you'll pay) / 12 (months) = $6,875 (monthly rent you'll pay).
Fun History Facts
Well, at lease (see what I did there?) I think it’s factual. I scoured the web looking for the history of the NNN leases and couldn’t find much. Somebody should do some research, write something useful about it and send it to me because I am curious about the origins. That said, if you’re dying to know more about the history of leasing, here is some back drop.
According to Wikipedia, (which may or may not be relied upon as accurate or inaccurate) leases date back a few centuries and were primarily used for agricultural purposes. Huh, how about that... My Uncle leases land on which he farms and complains constantly about the rising rent prices. And, the rain...
It wasn’t until around the 18th century that industrialized countries made leases an important form of landholding in urban areas. Clearly, a tradition we’ve carried forward since.
Wonder if Elon will offer up space leases…