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What is a net lease?

A net lease is a type of commercial lease often used for retail or office environments. Typically, tenants that enter into a net lease pay a lower base rent each month than those that enter into other types of commercial leases, but that is because those tenants also pay part of the net expenses of the property. The "nets" are usually considered insurance, property tax and CAMS, though net lease tenants also usually cover other expenses such as common area maintenance or their own utilities.

Net leases come in several types. The first type is called a single net lease, or N lease. An N lease usually occurs when the tenant agrees to pay a base rent plus a share of property taxes. That share is usually determined by the percentage of the property that the tenant is occupying.

A double net lease, or NN lease, involves payment of rent and a share of both property tax and property insurance. Both N and NN leases usually also require the tenant to pay for cleaning and utilities within the space rented, but the landlord typically covers such things for common areas.

A triple net lease, or NNN lease, has the tenant paying insurance, property taxes, CAMS and base rent. The tenant usually has some obligation toward shared maintenance of common areas, too, and must pay utilities for the space being leased.

Understanding your lease type is critical to budgeting for your business. Working with a real estate attorney can help you negotiate a lease that works for your business, and if you are dealing with a dispute about what should be paid under your lease, a lawyer can help you make a case for your argument.

Source: 42 Floors, "3 Different Types of Commercial Real Estate Leases," May 01, 2016

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