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LEASE TERMINOLOGY
Lease Terminology
COMMERCIAL BUILDINGS
TRIPLE NET LEASES
There are numerous forms of net leases. The most common of these is the Triple Net
lease. In a Triple Net lease, the tenant is responsible for their proportionate share of
property taxes, property insurance, common operating expenses and common area
utilities. Tenants are further responsible for all costs associated with their own
occupancy including personal property taxes, janitorial services and all utility costs.
If the space is part of a larger building, the common area maintenance charges
(CAMS) will be divided among the tenants of the building, generally based upon the
tenant’s square footage percentage of the overall complex. In general, the landlord will
be responsible for the structural integrity of a building.
NET LEASES
As with modified gross leases there are numerous forms of net leases. The most
common of these is the Triple Net lease. In a Triple Net lease, the tenant is responsible
for their proportionate share of property taxes, property insurance, common operating
expenses and common area utilities. Tenants are further responsible for all costs
associated with their own occupancy including personal property taxes, janitorial
services and all utility costs.
This type of lease is rarely utilized in a multi-tenant office building. As with a modified
gross lease, a modified net lease is also available. There are no set standards as to
what costs may be excluded in a modified net lease; the lease is usually customized
according to need.
Types of Net Leases
Net leases define the responsibilities of the landlord and the tenant differently. The
following are types of net leases:
Single Net Lease – A single net lease is a net lease where the tenant agrees to pay a
monthly lump sum base rent as well as the property taxes. The landlord is responsible
for all other operating expenses of the premises.
Double Net Lease (NN) – A double net lease is a net lease where the tenant agrees to
pay a monthly lump sum base rent as well as the property taxes and the property
insurance. The landlord is responsible for all other operating expenses of the
premises.
Triple Net Lease (NNN) – A Triple net lease is a net lease where the tenant agrees to
pay a monthly lump sum base rent as well as the property taxes, the property
insurance, and the maintenance. Under a triple net lease there are a few legal
defenses which may relieve a tenant of his responsibilities. For example, a triple net
lease may relieve the tenant of his responsibility if the property is subject to an
eminent domain proceeding.
Absolute Triple Net Lease (Bond Lease) – An absolute triple net lease is a net lease
where the tenant agrees to pay a monthly lump sum base rent as well as the property
taxes, the property insurance, and the maintenance. Under an absolute triple net lease
there are no legal defenses if a tenant fails to meet his responsibilities.
SINGLE TENANT OFFICE BUILDINGS
Generally, single tenant office buildings are leased on a triple net basis (NNN). This
lease calls for the tenant to be responsible for all costs associated with occupancy.
STANDARD INDUSTRIAL GROSS LEASES
The industrial modified gross lease is common among multi-tenant industrial buildings.
As with a modified gross lease, the landlord will generally pays for the base year
property taxes and building insurance. Tenants are generally responsible for their
share of common area operating expenses and common area utilities. Services that
the Landlord provides differs from lease to lease.
PROPORTIONATE SHARE
The Tenant’s proportionate share of operating expenses are calculated on a square
footage basis.
Tenant’s Sq. Ft. divided by Total Building Sq. Ft. = Tenant’s proportionate share
BASE YEAR
A “Base year’ is typically utilized in multi-tenant industrial building leases to determine
“base” cost for operating expenses cost of the space. The base operating expense
account is the floor over which any increases in operating expenses will be passed on
to the tenants of the building. In general, a base year is calculated on a calendar year
basis or the first 12 months of Tenant’s occupancy.
MULTI-TENANT OFFICE BUILDINGS
Full Service Gross: A full service gross lease is where the Landlord is responsible for
the payment of taxes, maintenance, insurance and utilities. All of the costs are
included in the base rent figure.
The tenant is typically responsible for their own property insurance and taxes and any
excess utility consumption beyond building standards. Further, Tenant is typically
responsible for their proportionate share of any increase in base operating expenses
over a base year or expense stop.
PROPORTIONATE SHARE
The Tenant’s proportionate share of operating expenses are calculated on a square
footage basis.
Tenant’s Sq. Ft. divided by Total Building Sq. Ft. = Tenant’s proportionate share
BASE YEAR
A “Base year’ is typically utilized in multi-tenant full services gross office building
leases to determine “base” cost for operating expenses within the project. The base
operating expense account is the floor over which any increases in operating
expenses will be passed on to the tenants of the building. In general, a base year is
calculated on a calendar year basis or the first 12 months of Tenant’s occupancy.
EXPENSE STOP
An expense stop is the preferred method for expense calculation by a Landlord. This
vehicle allows a Landlord to estimate the approximate expenses the building will incur
and the tenant is responsible for payment of their proportionate share of actual
operating expenses over the estimated expense stop. This is rarely utilized anymore
as it led to fraudulent estimates of expenses in the past and unexpectedly high
operating expense pass-throughs to tenants.
MODIFIED GROSS LEASES
There are numerous types of modified gross leases that are commonly utilized in multi-
tenant office buildings. A modified gross lease is similar to a full service gross lease,
except that some of the base services are not included by the landlord (taxes,
maintenance, insurance and utilities). The most common types of modified gross
leases excludes maintenance, janitorial and electrical. This type of lease is commonly
utilized in medical office buildings or multi-tenant single floor office buildings, where
different tenants have varying needs for electrical or janitorial services. In general,
this type of lease requires separately metering individual office suites to determine
electrical usage. Generally in a modified gross lease the Landlord has the right to
expense pass-throughs utilizing a “base year.”
RETAIL LEASES
The most common lease utilized in the retail industry is the net lease. As with the
industrial and office net lease, the retail net can be utilized for either a single tenant or
a multi-tenant environment. Most retail centers utilize a net lease where the owner
oversees the common area maintenance (CAM) and this expense is divided among
the tenants as in any multi-tenant facility.
PERCENTAGE OF SALES
Retail lease can have a provision where as the Landlord will receive a percent of the
gross sales of the business after reaching an established dollar volume of the
business.
COMMERCIAL BUILDINGS
TRIPLE NET LEASES
There are numerous forms of net leases. The most common of these is the Triple Net
lease. In a Triple Net lease, the tenant is responsible for their proportionate share of
property taxes, property insurance, common operating expenses and common area
utilities. Tenants are further responsible for all costs associated with their own
occupancy including personal property taxes, janitorial services and all utility costs.
If the space is part of a larger building, the common area maintenance charges
(CAMS) will be divided among the tenants of the building, generally based upon the
tenant’s square footage percentage of the overall complex. In general, the landlord will
be responsible for the structural integrity of a building.
NET LEASES
As with modified gross leases there are numerous forms of net leases. The most
common of these is the Triple Net lease. In a Triple Net lease, the tenant is responsible
for their proportionate share of property taxes, property insurance, common operating
expenses and common area utilities. Tenants are further responsible for all costs
associated with their own occupancy including personal property taxes, janitorial
services and all utility costs.
This type of lease is rarely utilized in a multi-tenant office building. As with a modified
gross lease, a modified net lease is also available. There are no set standards as to
what costs may be excluded in a modified net lease; the lease is usually customized
according to need.
Types of Net Leases
Net leases define the responsibilities of the landlord and the tenant differently. The
following are types of net leases:
Single Net Lease – A single net lease is a net lease where the tenant agrees to pay a
monthly lump sum base rent as well as the property taxes. The landlord is responsible
for all other operating expenses of the premises.
Double Net Lease (NN) – A double net lease is a net lease where the tenant agrees to
pay a monthly lump sum base rent as well as the property taxes and the property
insurance. The landlord is responsible for all other operating expenses of the
premises.
Triple Net Lease (NNN) – A Triple net lease is a net lease where the tenant agrees to
pay a monthly lump sum base rent as well as the property taxes, the property
insurance, and the maintenance. Under a triple net lease there are a few legal
defenses which may relieve a tenant of his responsibilities. For example, a triple net
lease may relieve the tenant of his responsibility if the property is subject to an
eminent domain proceeding.
Absolute Triple Net Lease (Bond Lease) – An absolute triple net lease is a net lease
where the tenant agrees to pay a monthly lump sum base rent as well as the property
taxes, the property insurance, and the maintenance. Under an absolute triple net lease
there are no legal defenses if a tenant fails to meet his responsibilities.
SINGLE TENANT OFFICE BUILDINGS
Generally, single tenant office buildings are leased on a triple net basis (NNN). This
lease calls for the tenant to be responsible for all costs associated with occupancy.
STANDARD INDUSTRIAL GROSS LEASES
The industrial modified gross lease is common among multi-tenant industrial buildings.
As with a modified gross lease, the landlord will generally pays for the base year
property taxes and building insurance. Tenants are generally responsible for their
share of common area operating expenses and common area utilities. Services that
the Landlord provides differs from lease to lease.
PROPORTIONATE SHARE
The Tenant’s proportionate share of operating expenses are calculated on a square
footage basis.
Tenant’s Sq. Ft. divided by Total Building Sq. Ft. = Tenant’s proportionate share
BASE YEAR
A “Base year’ is typically utilized in multi-tenant industrial building leases to determine
“base” cost for operating expenses cost of the space. The base operating expense
account is the floor over which any increases in operating expenses will be passed on
to the tenants of the building. In general, a base year is calculated on a calendar year
basis or the first 12 months of Tenant’s occupancy.
MULTI-TENANT OFFICE BUILDINGS
Full Service Gross: A full service gross lease is where the Landlord is responsible for
the payment of taxes, maintenance, insurance and utilities. All of the costs are
included in the base rent figure.
The tenant is typically responsible for their own property insurance and taxes and any
excess utility consumption beyond building standards. Further, Tenant is typically
responsible for their proportionate share of any increase in base operating expenses
over a base year or expense stop.
PROPORTIONATE SHARE
The Tenant’s proportionate share of operating expenses are calculated on a square
footage basis.
Tenant’s Sq. Ft. divided by Total Building Sq. Ft. = Tenant’s proportionate share
BASE YEAR
A “Base year’ is typically utilized in multi-tenant full services gross office building
leases to determine “base” cost for operating expenses within the project. The base
operating expense account is the floor over which any increases in operating
expenses will be passed on to the tenants of the building. In general, a base year is
calculated on a calendar year basis or the first 12 months of Tenant’s occupancy.
EXPENSE STOP
An expense stop is the preferred method for expense calculation by a Landlord. This
vehicle allows a Landlord to estimate the approximate expenses the building will incur
and the tenant is responsible for payment of their proportionate share of actual
operating expenses over the estimated expense stop. This is rarely utilized anymore
as it led to fraudulent estimates of expenses in the past and unexpectedly high
operating expense pass-throughs to tenants.
MODIFIED GROSS LEASES
There are numerous types of modified gross leases that are commonly utilized in multi-
tenant office buildings. A modified gross lease is similar to a full service gross lease,
except that some of the base services are not included by the landlord (taxes,
maintenance, insurance and utilities). The most common types of modified gross
leases excludes maintenance, janitorial and electrical. This type of lease is commonly
utilized in medical office buildings or multi-tenant single floor office buildings, where
different tenants have varying needs for electrical or janitorial services. In general,
this type of lease requires separately metering individual office suites to determine
electrical usage. Generally in a modified gross lease the Landlord has the right to
expense pass-throughs utilizing a “base year.”
RETAIL LEASES
The most common lease utilized in the retail industry is the net lease. As with the
industrial and office net lease, the retail net can be utilized for either a single tenant or
a multi-tenant environment. Most retail centers utilize a net lease where the owner
oversees the common area maintenance (CAM) and this expense is divided among
the tenants as in any multi-tenant facility.
PERCENTAGE OF SALES
Retail lease can have a provision where as the Landlord will receive a percent of the
gross sales of the business after reaching an established dollar volume of the
business.
