Legal Definitions - net lease

A net lease is a type of commercial real estate agreement where the tenant is responsible for paying not only the base rent for the property but also a portion or all of the property's operating expenses. Unlike a "gross lease," where the landlord typically covers most of these additional costs, a net lease shifts some of these financial responsibilities, such as property taxes, insurance, and maintenance, to the tenant. This arrangement is common in commercial properties, particularly for retail, office, and industrial spaces.

There are different levels of "net" leases, categorized by which specific expenses the tenant is responsible for:

• Single Net (N) Lease: In this arrangement, the tenant pays the base rent plus the property taxes. The landlord typically remains responsible for property insurance and common area maintenance (CAM) costs.
• Double Net (NN) Lease: Also known as a "net-net" lease, this type requires the tenant to pay the base rent, property taxes, and property insurance premiums. The landlord usually still handles common area maintenance.
• Triple Net (NNN) Lease: Often referred to as a "net-net-net" lease, this is the most comprehensive type. The tenant pays the base rent, property taxes, property insurance, and common area maintenance (CAM) charges. In many NNN leases, the tenant also covers utilities and other operating expenses, making them responsible for nearly all costs associated with the property's operation, beyond major structural repairs which often remain the landlord's responsibility. This type is frequently used when a single tenant occupies an entire commercial building.

Examples of Net Leases:

Example 1: A Standalone Retail Store (Triple Net Lease)

A popular coffee shop chain decides to open a new location in a standalone building within a bustling shopping center. They enter into a Triple Net (NNN) lease agreement with the property owner. Under this lease, the coffee shop pays a monthly base rent. In addition, they are responsible for all property taxes assessed on the building, the insurance premiums for the property, and all common area maintenance (CAM) costs, such as landscaping around their building, parking lot upkeep, and exterior lighting. They also pay directly for their own utilities like electricity, water, and gas. This arrangement means the landlord receives a predictable base rent, while the coffee shop tenant manages almost all the day-to-day operational expenses of the property.

Example 2: A Medical Office Suite (Double Net Lease)

A new dental practice leases an office suite on the second floor of a larger medical office building. Their lease is structured as a Double Net (NN) lease. The dental practice pays its monthly base rent for the office space. On top of that, they are billed for their proportionate share of the building's annual property taxes and the building's master insurance policy. The landlord, however, remains responsible for managing and paying for the common area maintenance, such as cleaning the hallways, maintaining the elevators, and general building security, which might be covered by a separate CAM charge or included in the base rent for other tenants, but not directly passed through as a "net" expense in this specific NN lease structure for the dental practice.

Example 3: An Auto Repair Shop (Single Net Lease)

An independent auto repair shop leases a large garage facility with several bays. Their lease agreement is a Single Net (N) lease. The auto repair shop pays a monthly base rent for the expansive garage space. Crucially, they are also responsible for paying the annual property taxes directly to the local municipality. The landlord, in this scenario, retains responsibility for securing and paying for the property insurance on the building structure and managing any common area maintenance if the garage is part of a larger commercial complex. This allows the auto repair shop to have direct control over a significant operating cost (taxes) while the landlord handles other major expenses.