You see them and you hear them but do you really understand what the odd words your broker or landlord are talking about when they Triple-Net, Modified Gross or Full Service Lease? Better yet when you see those real estate terms abbreviated to the likes of NNN, MG or FSN?
Maybe you do and maybe you don’t understand the terms so here is a quick guide to help you navigate some of the more mundane terms of commercial real estate.
Triple-Net or NNN
This term means the tenant or lessee agrees to pay all the real estate taxes, insurance and maintenance. Basically, it means you are paying for the “three nets” in addition to all other expenses such as rent, utilities etc.
Double Net Lease (NN)
The tenant is responsible for the rent plus a portion of the property taxes and property insurance. In addition, the landlord will pay for building repairs and the maintenance of common areas. The lessee is typically liable for janitorial services.
Single Net Lease (N)
In a single net lease the lessee or tenant pays base rent along with a share of the buildings property taxes. The tenant also pays utilities and janitorial services.
Modified Gross or MG
A modified gross lease is a type of real estate rental agreement where the tenant pays base rent at the lease's inception but in subsequent years pays the base plus a proportional share of some of the other costs associated with the property, such as property taxes, utilities, insurance and maintenance.
This type of lease is typically the most popular among tenants due to the flexibility and easier agreement.
Full Service Lease
In a Full Service or Gross Lease the rent is all-inclusive and the landlord pays everything. The tenant pays one price and it includes the office space rent, utilities, insurance and janitorial.
Summary Whether you are searching for an office in a Class-A Building or a Class-C Building rental rates will usually be the same when they are in the same market. Therefore it is important to know all the lease options with one eye pointed toward all expenses, not just the base rate.
The most important thing you can do when beginning your search for office space is to read your lease carefully and understand the terms you are agreeing to. If you have any questions about a term be sure to ask an expert in commercial real estate or contact an attorney.