There are a few distinctive ways that landlords structure rent rates. The three most common are Triple Net (NNN) Lease Rate where the occupant pays a lower base lease to the landowner and after that every one of extra costs independently, a Gross Lease Rate where all working costs are incorporated into the month to month rental installments, and in the middle is the Modified Gross Rate.
Triple Net (NNN) Rate – A Triple Net Lease includes your monthly base rate plus, community area maintenance (CAM) expenses, property taxes, property insurance, electricity, water, gas, and janitorial expenses. rates can be deceivingly attractive to potential renters because of the low monthly payment that goes along with them. The danger, however, lays in the quarterly assessments that tenants have to pay to cover operating expenses of the building. If you have chose a property that has a NNN lease rate- ask for historic NNN’s (meaning past quarterly assessments) so you can get an idea of what those will be. One approach you could try to remedy increasing (or unknown) NNN’s (pronounced “Nets”) would be to ask the landlord to guarantee the costs for the term (or part of) the term of your lease. Lastly, ask if the property management company returns money to tenants if there was a positive balance at the end of the year, also known as a “pass through”. Additionally, ask your broker to request a cap be negotiated on fees to be included as a clause in your lease agreement.
Gross Lease Rate – A Gross Lease includes the CAM, property insurance, property taxes, water, gas, electricity, and janitorial all in the base rent. You won’t find any additional or hidden fees in a Gross Lease Rate lease. Great for businesses who that need to know exactly what their monthly payments will be for the term of the lease. While this may seem like an obvious advantage for a small business, sometimes a landlord will inflate the rental rate to cover the variable utility charges. Consequently, you may overpay for some things you don’t need or consume, but if a flat monthly rent with no financial surprises, then a Gross Lease Rate is your best bet.
Modified Gross Rate – A Modified Gross Lease accounts for CAM, property insurance, property taxes, water, in the base monthly rent plus gas, electric, and janitorial in additional expenses. If you are renting with a landlord that adopted this pricing model, be very clear about what is included and what is not when reviewing the lease. After that, a modified gross rate is a great low risk option because tenants don’t have to worry about maintenance charges or property tax hikes. The tenant only pays for the utilities that they use.