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What is the difference between triple net and full-service leases in commercial real estate?

Curious about Commercial real estate

What is the difference between triple net and full-service leases in commercial real estate?

Triple net (NNN) leases and fullservice leases are two common types of commercial real estate leases, and they differ significantly in terms of the financial responsibilities of the tenant and landlord:

1. Triple Net (NNN) Lease:

Tenant Responsibilities: In a triple net lease, the tenant assumes most of the financial responsibilities associated with the property. This includes paying not only the base rent but also all operating expenses related to the property. These operating expenses typically include property taxes, insurance premiums, and maintenance costs. The tenant is responsible for paying these expenses directly to the respective service providers.

Rent Structure: The rent in a triple net lease is generally lower than in other types of leases because the tenant is covering the operating expenses. The total cost to the tenant includes the base rent plus their share of property taxes, insurance, and maintenance costs.

Control: Tenants in triple net leases have more control over the property's operation and maintenance, as they are directly responsible for these aspects.

Common Usage: Triple net leases are commonly used for commercial properties like retail centers, office buildings, and industrial properties. They are especially prevalent in singletenant properties.

2. FullService Lease (Gross Lease):

Tenant Responsibilities: In a fullservice lease, also known as a gross lease, the tenant pays a fixed monthly rent, and the landlord covers most or all of the property's operating expenses. This includes property taxes, insurance, maintenance, utilities, and other common area expenses. The tenant's financial responsibility is limited to the agreedupon rent.

Rent Structure: The rent in a fullservice lease is typically higher than in a triple net lease because it includes all operating expenses. This allows tenants to have predictable monthly expenses without the fluctuation of additional costs.

Control: Landlords have more control over the operation and maintenance of the property in a fullservice lease, as they are responsible for these aspects. Tenants may have less involvement in property management.

Common Usage: Fullservice leases are often used for office buildings, multitenant retail centers, and some industrial properties. They are preferred when landlords want to provide a hasslefree leasing experience to tenants and when they want to maintain control over property management.

Choosing between a triple net lease and a fullservice lease depends on the specific needs and preferences of both the landlord and the tenant. Triple net leases can provide lower base rents but require tenants to manage operating expenses, while fullservice leases offer simplicity and predictability but may have higher rents. It's essential for parties to carefully review the lease terms and understand their financial responsibilities before entering into an agreement.

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