The following definitions are not a legal interpretation and should not be relied upon as such
For those who lease, it’s important to know the types of leases that can be established.
In broad terms, a NET lease (often referred to as a net, net, net, or NNN lease) typically provides a lease where the Tenant is responsible to pay the Landlord a base rent that is “net of” (excludes) the building’s operating expenses (such as property taxes, property insurance and property maintenance). In addition to this base rent the property’s operating expenses, either all or a portion, are also paid to the landlord as “additional rent”.
A GROSS Lease, typically represents a lease whereby the operating expenses (i.e. property taxes, property insurance and property maintenance) have already been incorporated and/or estimated into the overall lease rate (this is why the term “gross” is referenced to this type of lease).
For example, one facility might have an asking lease rate of $.80 per sq. ft. NNN. If the lease rate for this same facility were to be converted to a Gross lease rate such would be calculated as follows:
$.80psf + NNN expenses (the applicable monthly portion of property taxes, property maintenance, property insurance costs, i.e. $.10 psf) = $.90 psf GROSS. In simple terms, a Gross lease rate has summarized all operating costs into a “simple” monthly rental payment for the Tenant. The Gross lease calls for the Tenant to pay a single, flat rental amount. The Landlord then pays all of his expenses out of this flat rental amount.
In a Net lease the Tenant has a stated monthly rent and then the Tenant is subsequently billed for the specific operating costs as they occur. Within a net lease, Landlords and Tenants often will agree to an “estimated expense” amount of the anticipated operating expenses so all is included in a total monthly rent and then the actual expense amount is reconciled at year end per the actual billing.
From a rental payment standpoint, one can view either lease scenario as a being very similar.
So one may ask… “What is the primary difference between a NNN and GROSS lease?”
Well the primary difference, is in the Tenant’s responsibility for the maintenance and care of the building and the general liability of the building as a whole. In general, with a Gross Lease the Landlord is responsible for the “exterior of the building” (i.e. roof, landscaping etc.) and the Tenant is responsible for the “interior of the facility”. Gross Leases will often be seen on older facilities.
In general, with a Net Lease the Tenant is responsible for all of the maintenance “interior and exterior” of the building, as if they “owned” the building. This is why Net Leases will often be seen with newer buildings and newer conditioned facilities where maintenance liability may be viewed as less of an issue. NNN leases, however, can become expensive if surprise maintenance issues arise, or the property does not have an established expense pattern (i.e. it’s new).
It is important to keep in mind that the use of these terms, “net and gross” within the marketplace are not necessarily unvarying in their meaning and one should always review “inclusions and exclusions” of specific provisions within any given lease.
Here at Bryan Industrial Properties we pride ourselves in providing in most of our lease arrangements a Gross Lease with a simple overall stated monthly rent. For the benefit of our Tenants we take on the routine management burdens of ownership instead of making them the responsibility of the Tenant. In addition, our Gross Lease has no CAM (Common Area Maintenance) charges. In fact, we limit operating expense pass-thrus to a minimum so Tenants can have the confidence of knowing what their rent will be during their entire lease term.
