What Is The Difference Between NNN, NN, And Gross Lease Provisions?

Author

Ken Wimberly

When it comes to commercial real estate, there are various types of leases that landlords and tenants can agree upon. Among the most common lease types are NNN leases, NN leases, and Gross leases. Each type of lease has its own set of advantages and disadvantages, and understanding the differences between them is essential for both landlords and tenants.

NNN Leases

NNN stands for Triple Net Lease, and it is a type of lease agreement in which the tenant is responsible for paying all of the property’s operating expenses. These expenses include property taxes, insurance, and maintenance costs, in addition to rent payments.

With an “Absolute NNN Lease”, the tenant is responsible for structural integrity of the building and any major building repairs.

NNN leases are popular with landlords because they shift most (or all) of the property’s operating expenses to the tenant. This type of lease also provides the landlord with a predictable income stream because the tenant is responsible for covering any unexpected expenses that may arise.

On the other hand, NNN leases can be challenging for tenants because they must cover all the property’s operating expenses. If there are unexpected expenses, the tenant is responsible for covering them. Additionally, tenants may have to pay for improvements to the property, such as renovations or upgrades.

NN Leases

NN leases, or Double Net Leases, are similar to NNN leases in that the tenant is responsible for paying some of the property’s operating expenses, but not all of them. In an NN lease, the tenant is responsible for paying property taxes and insurance, while the expenses for maintenance costs and repairs are divided between tenant and landlord. Who pays for what is specified in the terms of the lease.

NN leases are a good option for landlords who want to reduce their expenses while still providing some level of protection for the property. This type of lease is also beneficial for tenants who are looking for a lower overall rental rate and avoid a potential major expense of a foundation repair or roof replacement.

It is important for tenants to thoroughly review their lease and understand exactly what expenses they might be responsible for covering.

Gross Leases

Gross leases, also known as full-service leases, are the simplest and most straightforward type of lease agreement. In a gross lease, the tenant pays a fixed monthly rental rate that includes all of the property’s operating expenses, such as property taxes, insurance, maintenance costs, and occasionally utilities.

Gross leases are popular with tenants because they provide a predictable monthly rental rate that includes all the property’s operating expenses. This makes it easier for tenants to budget their expenses and avoid unexpected costs. Additionally, gross leases are generally less complicated than NNN or NN leases, making them easier for tenants to understand.

For landlords, gross leases can be more challenging because they must cover all of the property’s operating expenses. This can make it harder to predict monthly income, particularly if there are unexpected expenses. Additionally, landlords may need to increase the monthly rental rate to cover any unexpected expenses, which can make the property less attractive to tenants.

Which Lease is Right for You?

Determining which type of lease is right for you depends on your specific needs and circumstances. From a landlord’s perspective, a NN or NNN lease is generally preferable. NNN leases are very common in most newer single tenant properties. NN leases are more common in newer multi-tenant properties.

For tenants, gross leases are generally the easiest to understand and provide a predictable monthly rental rate that includes all the property’s operating expenses. Gross leases are more often found with older properties. Landlords of newer properties generally push for NN or NNN leases.

Conclusion

In conclusion, understanding the differences between NNN, NN, and gross leases is crucial for both landlords and tenants in commercial real estate. By weighing the advantages and disadvantages of each type of lease and carefully reviewing the lease agreement, both parties can make an informed decision and protect their interests.

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