The "NNN" term normally refers to maintenance, real estate taxes, and insurance.
In a pure single Tenant NNN lease the Tenant pays all expenses directly. The Landlord gets a rent check every month and doesn't have to deal with any expenses. In this situation the Tenant makes all the arrangements for maintenance, and pays the vendors directly. The Tenant also arranges for all insurance and pays the insures directly. The Tenant also pays the real estate taxes directly.
In a Shopping Center NNN setting here is how it is normally handled. The Tenant pays its pro rata share of all common area expenses including common area maintenance, real estate taxes and insurance. Landlords also include the cost of property management in the expenses and some Landlords charge an administrative fee on top of that. In this case the Landlord arranges for all the maintenance, insurance coverage, etc, and pays these expenses directly. The Tenant reimburses the landlord for these costs. The way most Landlords handle this is to come up with an estimate for expenses for a new year in the weeks or months before it begins. They then divide that number by 12 months and multiply it by the percentage of space the tenant occupies in the entire shopping center. Thus the Tenant pays a monthly pro rata share of the total shopping center expenses. After the year ends the Landlord should do a reconciliation. If the actual expenses for the year exceed what Tenants in the shopping center paid the Landlord, the Tenants are billed for their pro rata share of the amount the expenses exceeded their payments. If the amount the Tenants paid the Landlord exceed the actual expenses the Tenants are generally given a credit towards the expenses for the new year.
Oct 27, 2010