Understanding Commercial Leases

Posted on November 19, 2018

Commercial real estate investments typically involve tenants and long-term leases, which can be confusing for new investors to understand. In a traditional lease, a tenant pays monthly rent to a landlord who is responsible for a property’s upkeep and paying real estate taxes, insurance and of the maintenance costs. By contrast, in a net lease, a tenant pays directly to the landlord both their monthly rent and some or all of the typical expenses the landlord would ordinarily pay to operate and maintain the property.

Single Net Leases require tenants to pay to the landlord a base rent plus their share of property taxes. In these arrangements, the landlord covers the costs for insurance, operating expenses and common area maintenance, including janitorial services, property management fees, sewer, water, trash, landscaping, parking lot, fire sprinklers, and any shared area or service.

Double Net Leases (NN) require tenants to pay their base rent along with property taxes and insurance.

Triple Net Leases (NNN) shift all of the management responsibilities and related costs to the tenants, who pay base rent plus property taxes, insurance and all other fees associated with operating the property, including capital expenses. While an NNN can eliminate all of a landlord’s administrative burdens and costs of managing a property, property owners must be careful calculating and recording the additional expenses paid by tenants.

With offices in Miami, Orlando, New York City and Geneva, the team at Orion works with investors, developers, property owners and brokers through all phases of real estate transactions, from strategic planning and analysis to financing, negotiation, property management and disposition. For more information, call (305) 278-8400 or email info@orionmiami.com.