Understanding Triple Net Operating Expenses in Commercial Real Estate Leases
If you're considering leasing commercial real estate space, it's important to familiarize yourself with the concept of triple net operating expenses. These expenses can have a significant impact on your overall leasing costs and should be thoroughly understood before signing a lease agreement. In this blog post, we will explain what triple net operating expenses are and why they matter to prospective tenants like you.
What are Triple Net Operating Expenses? Triple net operating expenses, often abbreviated as NNN expenses, refer to the additional costs that tenants are responsible for in addition to their base rent. These expenses typically include property taxes, insurance, and common area maintenance (CAM) fees. Unlike gross leases where the landlord covers most expenses, triple net leases shift the responsibility of these costs to the tenant. Triple net operating expenses are typically adjusted yearly to reflect the actual increase (or decrease) in operating expenses on the property.
Property Taxes: Property taxes are one component of triple net operating expenses. They are levied by local government authorities based on the assessed value of the property. As a tenant, you may be responsible for your proportional share of property taxes, which is typically determined by the size of your leased space relative to the total property size.
Insurance: Tenants are generally required to obtain insurance coverage for their leased space. This typically includes liability insurance and business property insurance, which protect against any potential damages or liabilities that may arise during your tenancy. In a triple net lease, the cost of the landlord's property insurance premiums is usually included in the triple net operating expenses.
Common Area Maintenance (CAM) Fees: CAM fees cover the costs associated with maintaining and operating common areas within the commercial property, such as parking lots, hallways, elevators, security and landscaping. These fees are divided among all tenants and are calculated based on each tenant's proportionate share of the total leasable area. CAM expenses can include maintenance, repairs, utilities, cleaning services, and other expenses related to the common areas.
Why Do Triple Net Operating Expenses Matter to Tenants? Understanding triple net operating expenses is essential for prospective tenants because they significantly impact the total cost of leasing commercial space. By being aware of these expenses upfront, you can accurately assess your budget and make informed decisions about the affordability of a particular property. It's crucial to carefully review the lease agreement and discuss the breakdown of triple net expenses with the landlord or leasing agent.
Triple net operating expenses are an important aspect of leasing commercial real estate. By understanding what they entail—property taxes, insurance, and common area maintenance fees—you can better evaluate the overall cost of occupying a space. When considering a lease, review the lease agreement carefully, discuss the breakdown of triple net expenses with the landlord, and assess your budget to ensure a clear understanding of your financial obligations. By being well-informed about triple net operating expenses, you can make confident decisions when selecting the right commercial space for your business.