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Lease lingo - not knowing can get expensive!

4/11/2013

3 Comments

 
In various industries we use acronyms, nicknames, or abbreviations that don’t make sense to someone not in the business.  I decided to give you a cheat sheet of sorts for various commercial lease types common in the commercial real estate world.  It is important to read the lease and ask questions, because these lease types can mean different things to different people.  Not asking the questions, can be very expensive to you (landlord or tenant!).

Various Lease Types

Absolute Net (True NNN)
Tenant pays a base rent plus ALL expenses associated with the property…even capital improvements!  The NNN stands for net-net-net (taxes, insurance, & maintenance). Found most commonly in corporate retail leases and sale-leaseback transactions.

Triple-net (NNN)
Tenant pays base rent plus all operating expenses associated with the property. Typically excludes capital improvements. This means the tenant will be paying property taxes, insurance, and maintenance.  Found in many retail property leases (i.e. Walgreens, O’Reilly’s, etc.), newer industrial properties, and single tenant buildings.

Double Net (NN)
Tenant pays a base rent plus their share of taxes and insurance. This can also be the tenant paying taxes and maintenance or tenant paying insurance and maintenance.  Found occasionally throughout various property types.

Modified Gross (Mod Gross)
This is the most variable type of lease. Tenant typically pays a set rent plus some of the operating expenses.  I see this most often as tenant paying rent plus utilities.  This is a common lease structure for many, mostly smaller, properties from industrial, to office, to apartments.

Full Service Excluding Janitorial (FLSVEJ)
Tenant pays a set base rent plus any janitorial they may desire.  Landlord pays all operating expenses of the property excluding janitorial. Found commonly in smaller office properties.

Gross (Full Service, FLSV)
Tenant pays a base rent which includes all expenses.  Landlord is paying for all building operating expenses including janitorial service.  Most common in larger, newer office buildings.

3 Comments
Restaurant Space For Lease Orange County link
2/15/2019 03:34:57 am

While restaurateurs are well-versed in the ways of marketing, managing, and menus, they are not always knowledgeable about real estate. Most restaurant tenants may through the leasing process once or twice in their lifetime, yet they find themselves up against seasoned professionals who negotiate leases every day for a living.

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real-estate link
2/20/2019 02:55:13 am

Awesome Post. Real Estate business is the most popular and profitable business in the World. You have awesome information which people can easily understand.

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Sandra Patterson link
5/23/2019 01:13:47 pm

Thank you for explaining that a triple net means that the tenant has to pay for property tax, insurance, and maintenance of a commercial building. My sister is thinking about leasing a building her startup business soon, but she wants to be sure that she is prepared for that. I will be sure to forward this article to her so that she can know important lingo.

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