To keep things simple in judging leases, you may separate a lease into two distinct categories.
1. A full service gross lease, that includes all costs in one monthly charge that is set in the lease. This type of lease is usually subject to some kind of annual increase plan, such as Cost of Living, a set annual increase over the term; or clauses that refer to increases in certain costs such as insurance, property taxes, etc.
2. A triple net lease, which is identified as NNN. This lease has a base lease amount with the tenant paying a proportionate share of all annual expenses. Each N stands for (a) taxes, (b) property insurance and (c) common area maintenance. This amount is usually charged on a monthly basis with a yearend reconciliation of the actual costs.
Any modification of these two types of leases can usually be then classified as a modified gross lease. One might make an argument for a modified net lease as well, however, it is better to start from the viewpoint of a full service gross and see what the modifications are, until it becomes a true triple net lease.
This should not be confusing, if you keep the two types of leases in mind.
Onward and Upward…
Oct 30, 2012