What is a Triple Net Lease (NNN Lease)?

What is a Triple Net Lease Blog Image: A close up of three sets of hands sorting through documents.

When you’re looking at commercial properties and start reviewing rental rates, it’s important to know what you’re looking at. Landlords in Maryland commonly express their lease rates in one of three ways – Triple Net (NNN), Modified Gross (MG), or Full Service (FS). But what does this all mean for you? What is a Triple Net Lease? What is a Modified Gross Lease? What is a Full Service Lease? And how will each impact what you end up paying?

In this article today, we’re going to cover one of these – the Triple Net (NNN).

What is a Triple Net Lease (NNN Lease)?

Time and time again, we hear the same question. What is a Triple Net Lease? How does it work? And how will it affect my bottom line? Well, to help you better understand the intricacies of the Triple Net (NNN), here’s United Development Realty Founder and CEO Charles Peacock.

Charles Peacock: “There’s a question I get all the time when I’m helping clients look for lease space. Hey, what’s with that Triple Net? In Maryland, landlords will express their rent as an annualized rate and then they put an acronym on the end (NNN, MG, or FS). That acronym will tell us whether or not the expenses for operating the building is also included in that rate. With Triple Net, it’s not. On the other end of the spectrum is full service. And in that case, your base year expenses are included in the rate that they’re showing you. And then you have modified growth. That’s kind of a hybrid in between. It’s going to have some of the expenses, but not all. You know you’re going to be expected to pay the rent and your proportionate shares of the expenses on any space. So it’s not so important how your landlord expresses the rent as it is that you know your all-in number. So you’re going to want to work with your broker to make sure you understand your total cost on each space you’re looking at. That way you can make an informed decision.”

Some Typical Characteristics of the Different Rent Methods 

In every case, the tenant will be responsible for the rent and their share of utilities and operating expenses. However, there are some different characteristics of each method.

  • Triple Net (NNN) – The NNN rent appears to be lower at first glance since the expenses are not included. The Tenant typically is separately metered and charged directly by the utility provider. In the NNN method the Tenant usually pays the actual expenses. In many cases the Tenant is responsible for the space cleaning and maintenance. 
  • Modified Gross (MG) – Some due diligence will be required to determine what is included and what is paid outside the rent on each MG space, as many Landlords use the MG method in a slightly different way. The MG method describes a situation where some expenses are inside the rent, while other expenses are paid by the tenant separately.
  • Full Service (FS) – The FS rent initially appears higher until you deduct the expenses. The Tenant is usually not separately metered but rather charged on their proportionate share of the total building utility costs. The tenant is also charged for increases in building expenses above the cost of the Base Year (usually the initial lease year). Many FS buildings have staff that will handle the routine maintenance and cleaning. 

Working with a Broker Can Help Ensure a Market Deal!

The decision to work with an experienced tenant rep or not can be the difference between a favorable and unfavorable lease agreement.

  • Brokers understand the real estate market inside and out. They have the experience and expertise you need to find the right property, analyze the lease, and negotiate favorable terms.
  • Brokers have access to up-to-date market data, databases, and tools that track industry trends, vacancy rates, and comparable properties. This specialized knowledge is invaluable when analyzing and negotiating your lease.
  • Brokers know the landlords, the properties, the buyers, and the sellers in the area. They have existing relationships that further assist in the negotiation process. Furthermore, some landlords and landlord representation brokers prefer to work with other brokers rather than individual business owners.

All of this means that your broker will be well-positioned to negotiate on your behalf and help ensure that you don’t end up paying above the current real estate market. And how much will hiring a commercial real estate broker cost you? Nothing! Almost every lease deal has a paid commission built into it, funded by rental dollars. So, if you choose to forgo hiring a tenant rep, you actually won’t save any money, but you will give up considerable leverage.

United Development Realty is Here to Help!

Whether you’re still struggling with that big question – what is a triple net lease – or you just need a little extra guidance, partnering with the right broker can make all the difference. You need a real estate agent on your side, looking out for your best interests when you’re in the market to lease a commercial property. 

United Development Realty is a licensed and experienced commercial real estate broker in Maryland specializing in tenant representation and, more specifically, lease analysis and negotiation. We start by listening to you – your current situation, your wants, and your needs. Then, once we fully understand your business, we can help you review your options and, ultimately, help you make the best decision for your business.

Our client-first approach ensures that your unique needs are met. Please call our office today (locations in Bethesda 240-221-1976 and Fells Point 410-522-1632) to get in touch with a licensed broker.

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