Difference Between NNN and Gross Leases

There are three types of office rents: triple net (or NNN), full-service gross, and electricity net.

Rent is most commonly quoted on a three-net basis. This arrangement is common in industrial real estate properties where different tenants require separate building services and utilities. Landlords were able to distinguish between tenants who use utilities heavily and those that do not. Therefore, they only charge a base rent and let tenants manage their utilities and services.

Each tenant must pay an additional operating expense based on their share of the triple net lease. These expenses include taxes, insurance, and common-area maintenance costs that landlords incur to maintain common areas such as hallways, bathrooms, landscaping, and other common areas. Triple net leases also require tenants to pay their electricity bills and contract for cleaning services. However, these additional costs are not often disclosed upfront.

Triple-net rent structures are difficult for office space. The triple net asking rents can vary depending on many factors, including the quality and location of each building and the type and quantity of nearby amenities. In addition, operating expenses can vary greatly depending on the use of common areas, real estate taxes, and building insurance.

Keep in mind that if you're looking at office space asking rents on a triple-net basis, you must include all additional costs to "gross-up the rent" to be compared with office rents using different "service types" such as full-service gross or net of electricity.

The electric and full-service gross net includes the triple net base rent plus operating expenses. A net of the electric lease has one difference: the tenant pays for their electricity separately. Rents on a net-of-electric or full-service gross basis are generally more expensive, but they can be less expensive overall than triple net leases.

An example of this is the landlord's office space at $20.00 per square foot, triple net, per month. This may seem like a great deal. However, when you add another $10.00 for operating expenses and another $5.00 for janitorial and electricity, that office space you thought was a great deal now costs $35.00 per square foot per month on a full-service-gross-equivalent basis.

If you see a rent price that is too good to be true, ask about the details of the lease to get a clear picture of what it covers and how much it will cost you to lease or occupy that space.