03 Dec What is the difference between a triple-net (NNN), a modified gross, and a full service lease?
There are three main types of leases for commercial space: a triple-net (NNN), a modified gross, and a full-service. When it comes to understanding what each covers, it helps to think of it as a sliding scale. I’ll explain each in more detail below.
A NNN lease essentially means that all of the expenses related to the building are going to be passed on to you, the tenant. This includes a portion of the property taxes, property insurance, utilities, and maintenance. Everything will be passed on to you in some form or fashion. This also means that you’ll have to be in charge of daily maintenance, larger repairs, and upgrades and renovations in addition to running your business.
Modified Gross Lease
This type of lease splits expenses between the landlord and the tenant. In a modified gross lease, the landlord will take care of property taxes, property insurance, and usually major exterior and interior maintenance. You will be responsible for utilities, smaller interior maintenance, and any repairs that don’t rise to the level of major repairs.
A full-service lease is what’s most commonly seen in a multi-story/multi-tenant high-rise building. This type of lease takes care of everything from interior janitorial services to having the lobby looking great to covering utilities. You will usually pay a pro rata share of the building’s operating expenses based on your position and size within the building. It’s important to talk to your broker or landlord about pro rata expense estimates.
So, to recap, a NNN lease means that most of the costs related to upkeep and running the building will fall to you. A modified-gross lease splits the costs between you and the landlord. A full-service lease means that pretty much everything is paid for and all you need to do is walk into work, bask in the clean space, and get to it!