I often get questions from current and prospective partners about leases. I wanted to write you this short email to tell you about the different kinds of leases we sign with our tenants.
1. Gross Leases
In a gross lease, the tenant pays the property owner a fixed amount. This amount is all inclusive for a specific period of time i.e. monthly. All expenses are the burden of the owner. This is fairly standard in the apartment units we own.
2. Gross Plus or Modified Gross Leases
In a gross plus situation, the tenant typically pays a base rent plus a concession for utilities or expenses (typically quoted as $/square foot). The key difference between this and a net lease is the fact that the “plus” is typically fixed. This is fairly standard for many of our office buildings.
3. Net Leases (NNN)
You may have heard the term single or double or triple net, or even absolute triple net, sometimes stylized as NNN. In this agreement, the tenant is responsible for their corresponding percentage of all or some of the expenses. The key takeaway is that this number can vary where in a modified gross lease the “plus” portion is usually fixed. This takes risk of the landlords plate and transfers it to the tenant.
In our standard Triple Net Lease, the tenant is responsible for all taxes, maintenance, and insurance associated with the overall property. This is fairly standard on retail properties.
There are other types of leases, variations, and combinations of the above. These three are the three main ones we use.