There are several different types of leases (e.g. "Full Service," "NNN (Triple Net)," "NN (Double Net)," and "Gross," to name a few. You will also find that different landlords define them in different ways. It's always best to ask "What else besides the quoted rent will the tenant have to pay to the landlord, and to third party providers?" That question will get you all of the expenses you'll have to pay.
Full Service leases typically include all of your costs other than sales tax, where applicable. That is, your rent includes the base rent that goes to the landlord, the real estate taxes, insurance, CAM/operating expenses, and electric service and janitorial for the common areas and tenant space. The rent is paid in one check, and typically escalates at a fixed percentage each year.
NNN leases typically consist of a base rent which is paid to the landlord, and then "additional rents" which consist of the real estate taxes, common area and building insurance, and CAM/operating expenses. Always ask if the NNN additional rents include electric and janitorial for the tenant's space or not. That is an additional cost you must take into account if it is not included, in order to compare buildings "apples to apples." The base rent generally increases at a fixed percentage each year, but the additional rents are estimated at the beginning of each year, and you get a credit or a bill for the difference when it is reconciled at the end of each year. In Florida, for example, after Hurricane Wilma had spawned not only tremendous damage, but an ensuing massive increase in property insurance rates, those in NNN leases were required to pay the increases in those insurance rates – in some instances 300 – 400 % increases! The type of lease you have can have a major impact on your future expenses and must be carefully considered.
NN leases are similar to NNN leases, but the landlord typically absorbs costs for repair or replacement of the roof, structure and foundation of the property. This is typically found in single tenant properties.
Gross leases are similar to full service leases, but tenants pay their own electric and janitorial for their space.
Again, these terms differ from owner to owner, and from market to market. It's best to have an experienced tenant rep broker assist you through the process.
There are many other areas where you can become confused comparing buildings, including the common area loss factor (one building may be far more efficiently built than another, so you are getting less actual, or "usable" space than you think you are), renewal and expansion rights, reasonable rental rates, tenant improvement allowances, exclusivity clauses, free rent, etc. The list goes on. An experienced broker will help you construct a reasonable offer on all of those terms, and others. They will save you time, aggravation, and money.
May 27, 2010