A Differentiation of Triple Net Leases and Gross Leases

Written by:  Ida Fineberg, Broker & Co-Owner of Steve Fineberg & Associates

The Commercial Lease – it conjures images of clauses, conditions, timelines and COSTS.  The stipulations and conditions that ultimately become part of a lease are as varied and numerous as there are active leases.  One of the most important parts of a lease is costs/fees and who pays what – the lessor/owner or the lessee/tenant – either way this part of the lease is one that deserves a look.  Let’s look at the Tripe Net Lease.

All property owners have, for the most part, three costs which are part of owning property.  These costs are taxes (the government will always take its “fair share”), insurance (what? -  you want to own without protection?), and Common Area Maintenance (known as CAM and just think lobbies, elevators, landscape, maybe restrooms used by all tenants, etc.) .  

Gross Lease:  On the other side of this lease coin is  the gross lease wherein the owner/lessor  receives a bigger check from the lessee/tenant that includes costs of  taxes, insurance and CAM.  In the real world a majority of tenants prefer the Gross Lease rather than a Triple Net Lease because for them just writing one check takes care of the whole business rather than writing various checks for the cost of taxes, insurance, and CAM.  In other words, someone else takes care of the details. 

Triple Net Lease:  In a Triple Net Lease the owner receives a rent check that does  NOT  include the cost of taxes, insurance, and CAM.  In this scenario it is the tenant who would be responsible for the payment of these costs.  When an investor is looking to purchase income producing property, a preference is given to a building with triple net leases because the investor can more easily determine what the net income is in relation to the purchase price.

At the end of the day, it’s all about the structure of the lease.  Monetarily it is the same outcome for the owner/lessor. The bottom line is that the owner wants to cover the costs of these fees.  Not too difficult – its just common sense and good planning by all the parties.