Triple net, or the designation NNN or net, net, net is a lease agreement where the lessee (you) is responsible for Property Taxes, Insurance and Common Area Maintenance (AKA a “CAM fee”). The CAM fee is normally quoted in dollars per sq. ft. ranging anywhere from $1.00-$3.50 in my area. This fee also is used take care of snow removal and lawn care for all tenants. Normally, the lessee is also responsible for utilities, building repairs and other common fees associated with commercial space. Essentially, you pay everything you might pay if you owned the building…with one exception, the building payment. Normally, rent in a triple net property is less than a comparable property that is a net lease (property tax only) or double net lease (property tax & insurance).
When you are scoping out properties it is important to consider ALL of the fees and expenses involved before you make a decision. It can be helpful to bring along a scratch pad and rank your properties based on the following information:
- Base Rent -Usually quoted as $$/sq ft/year or a month rate
- Insurance Costs – from any full line provider
- Property Tax Costs – from county website
- Average Utility Expense – available from the utility company
- CAM fee – given by owner or realtor
- Condition of Property & Expected Repairs
- Location Traffic and Visibility
- Access to Location
- Complimentary Businesses or Competition near by.
- Length of Available Lease
Regarding the length of the lease, for most startups, I suggesting trying to get the shortest term possible. Because of the risk factor of new businesses shorter is better even if you have to pay rack rate for the space. Often, lessors will consider a one year lease with a four renewal in lieu of a five year lease. This gives you a chance to get 12 months under your belt and decide if the business is going to work out long term.
That said, never sacrifice a great location in exchange for a shorter term lease. It has been said, “You only pay for a good location once…you will pay for a bad location over and over again.”
For more info read our article Commercial Property & Finding a Great Location