Triple Net (NNN) Lease Agreement | For Commercial Property

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A triple-net (NNN) commercial lease agreement is a contract between a landlord and a tenant that pays for the three (3) ‘nets’, property insurance, real estate taxes, and common area maintenance (CAM). These costs are usually estimated for the year and incorporated into the rent on a monthly basis. At the end of the year, if the costs were lower then the tenant gets a refund, and if more then the tenant will owe the difference. Tenants will usually request the triple-net (NNN) amount to be capped based on the expenses for the previous year.

Table of Contents

What is a Triple-Net (NNN) Lease?

A triple-net (NNN) lease is a contract for commercial property where the tenant is responsible for all expenses related to the property, specifically, property insurance, real estate taxes, and common area maintenance (CAM). In most triple-net (NNN) leases, this also includes all utilities and services used by the tenant. This mainly applies to retail, industrial property, and free-standing buildings.

What does NNN Mean?

Net, Net, Net

Refers to a commercial lease where the tenant pays for:

  • Net – Property Insurance
  • Net – Real Estate Taxes
  • Net – Common Area Maintenance (CAM)

What is Common Area Maintenance (CAM)?

Common area maintenance, simply known as “CAM” or “CAM’s”, are expenses that are attributed to the cost of maintaining the property. What is defined as CAM’s should be outlined in the lease agreement and commonly are:

  • Building repairs
  • Cleaning (common areas)
  • HVAC expenses
  • Landscaping
  • Management (on-site repairman)
  • Outdoor lighting
  • Parking lot maintenance
  • Security
  • Signage
  • Snow removal

Capping NNN Expenses

To protect the tenant, a maximum cap of the NNN expenses is commonly negotiated by the landlord and tenant. This is on a price per square foot ($/SF) basis.

For multi-year leases, the cap will generally increase 5% to 10% each year.

Pro-Rata Share

A tenant is liable for their pro-rata share of real estate expenses for the entire property.

For example, if the tenant is located in a strip mall renting 10,000 square feet, while their space is only 1,000 square feet, the tenant would be responsible for 10% of the NNN expenses.

Landlord’s Responsibilities

Even though the tenant pays for the triple-nets through their monthly rent, the landlord will be the one actually making the payments.

For example, the landlord will directly pay the property insurance, real estate taxes, and property maintenance expenses while being reimbursed through the payment of triple nets.

In addition, the landlord will be required to take an accounting of all the expenses on the property. At the end of the year, if the triple net expenses were lower than expected the tenant will be reimbursed. If more than the triple-net rate, the tenant will be billed the extra costs.

How to Calculate

For the lazy, use the calculator provided by Austin Tenant Advisors. For those looking to calculate themselves use the formulas below:

Calculating Annual Rent ($/yr)

Price per Square Foot ($/SF) X Total Square Footage = Annual Rent ($/yr)

Example: Price per square foot is $30/SF and the total square footage is 2,000 SF. $30/SF multiplied by 2,000 SF is $60,000/yr.

Calculating Monthly Rent ($/mo)

Price per Square Foot ($/SF) X Total Square Footage = the Annual Rent ($/yr) and ÷ by 12 = Monthly Rent ($/mo)

Example: $30/SF multiplied by 2,000 square feet is $60,000/yr. Divide by 12 is $5,000/mo.

Calculating Price per Square Foot ($/SF)

Monthly Rent ($/mo) X by 12 = the Annual Rent ($/yr) and ÷ by the Total Square Footage = Price per Square Foot ($/SF).

Example: $5,000/mo multiplied by 12 is $60,000/yr. Divide by 2,000 square feet is $30/SF.

Triple-Net vs Gross Lease

TENANT PAYS GROSS MODIFIED-GROSS TRIPLE-NET (NNN)
Property Insurance x √*
Real Estate Taxes x √*
Common Area Maintenance x √*
Utilities √* √*
Repairs x √*
x – tenant does not pay, √* – conditional, √ – tenant pays

NNN Pros and Cons

A triple-net (NNN) lease is known for being a long-term fixed arrangement although with only minimal rent increases.

NNN Pros

  • Long-term lease;
  • Expenses are controlled; and
  • It provides a fixed income.

NNN Cons

  • The landlord must track and pay the expenses;
  • Rent increases are minimal (in most cases);
  • If build-to-suit, there is high exposure if the tenant defaults.

Sample Triple Net (NNN) Lease

Download: Adobe PDF, MS Word (.docx), OpenDocument

How to Write

Download: Adobe PDF, MS Word (.docx), OpenDocument

Step 1 – Acquire Your Copy Of The Triple Net (NNN) Lease Agreement

Locate the sample image on this page. The links presented with it, as do the links directly above, will allow access to the “Adobe PDF,” the “MS Word (.docx),” or “OpenDocument” file versions of the document on display.

Step 2 – Solidify The Date When This Agreement Is Made

This agreement will use the calendar date when the Lessor and Lessee enter it as one of its means of identification. This will be the first detail you input to this paperwork. It should be produced as a month and calendar day on the first blank line at the top of the page then record the year as a two-digit calendar year on the second blank line.

 

 

Step 3 – Introduce The Landlord In This Agreement

The Lessor behind this agreement (otherwise known as the Property Owner, Landlord, or Property Manager) must be presented as part of the introductory statement currently being tended to. His or her name should be produced on the blank line attached to the “Landlord” label. Keep in mind, if the Lessor or Landlord is a business entity, then its full legal name will be required here. This includes any suffix assigned as a designation of its status (on the books).

 

 

The Lessor’s “Mailing Address” is the next detail about this entity that is required, and it must be reported on the second line after the “Landlord” label. This must be a current and reliable address where the Landlord receives mail.

 

Step 4 – Name The Party Entering This Contract As The Tenant

Now, that we have made a presentation of the Lessor, we must deliver the full name of the Lessee onto the blank line attached to the bold label “Tenant.” This will be the Lessee of the agreement who intends to gain use of the Landlord’s premises in exchange for a rent amount.

We will complete this statement with the Tenant or Lessee’s mailing address. Locate the second blank line in the “Tenant” area then present the Lessee’s permanent mailing address as its contents. 

 

Step 5 – Document The Location Of The Concerned Premises

The next statement of this document will lead to several items that will define the contract the Lessor and Lessee agree to uphold for its duration. Many of these items will need information supplemented directly to their contents so they may be applied to both parties and the premises. Since we have already reported on the parties involved, we should attend to the blank line in the first item (“1. Premises”) with the production of the premises’ physical location. Report this address so that it can be found and physically accessed.

 

 

Step 6 – Define The Space Being Leased To The Tenant

After you have recorded the location of the premises, the blank space located in the item labeled “2. Rentable Space” requires that you fill in the number of square feet being rented as a result of this lease. This should either be this property’s total number of square feet being rented (as a whole) to the Tenant or the exact square footage of the Tenant’s leased space in a larger property.

 

 

Step 7 – Solidify What The Tenant May Do With The Premises

The Landlord and the Tenant must agree as to what may be done with the premises while it is being rented. The article designated with the “3. Use” label presents an area where you can input a description of precisely what the Tenant may do on the premises. This should include some details as to the Tenant’s business, its goals, and its manner of operation.

 

 

Step 8 – Present The Dates Framing This Document’s Lifespan

The fourth article here will seek to identify exactly when this lease will begin and when it shall end. That is, when the Tenant’s submission of rent will be accepted by the Landlord in exchange for the Tenant’s right to occupy the premises. This period of time shall be considered the “Initial Term” and will exist for the number of months you report on the blank line following the phrase “…An Initial Period Of.”

A definitive date when this agreement shall begin its effect must be reported. Continue through the statement in “4. Initial Term” to the word “…Beginning” then document the first calendar date when the effect of this document will be expressed using the two lines after this word.  After doing so, you must solidify when the last calendar date the Tenant may rent the premises will be. Thus, use the final calendar month and day of this agreement and the matching two-digit year to complete this statement by entering this information across the last two spaces.

 

 

Step 9 – Record The Determined Rent For The First Term

The next topic of discussion will be that of the “Monthly Rent.” The fifth article in this contract will bear this title and requires that you document the dollar amount the Tenant agrees to pay and the Landlord agrees to accept as rent. Deliver this content by writing it out on the first blank line in this statement then inputting it numerically in the parentheses that follow.  In addition to this, you must define which day of the month this is to be received by the Landlord to satisfy this lease. Use the blank space between the words “…Paid On The” and the term “Day Of Every Month” to display this information.

 

Step 10 – Indicate The Status Of The Rent Amount As The Lease Progresses

The fifth article (“5. Monthly Rent”) will continue by presenting two choices. You must choose one to apply to this agreement. If the rent amount we submitted will be fixed for the full lifespan of this lease without any increase, then mark the checkbox “Shall Remain The Same…”

If the Landlord and Tenant have agreed to a rent amount that will be more reflective of their needs and will increase as time goes on, then you must mark the checkbox attached to the words “Shall Increase During The Initial Term…” If this is the case, then continue to the next statement, if not, then you should proceed to Step 11.

A brief area with three “From…To” lines has been included in the second option. If the rent is set to increase and you have marked the second checkbox in “5. Monthly Rent” then you must report when each rent increase occurs and the new amount due. Each statement contains three pairs of blank lines that expect this content. The first pair of empty lines after the word “From” is reserved for the first calendar date of the rent increase while the next pair of blank lines expect the final calendar date when this rental period terminates. The final pair of blank lines require you furnish the exact “Monthly Rent” due for the period you defined.

 

 

Step 11 – Address The Security Deposit Requirements

The sixth item, titled “6. Security Deposit,” will serve to define whether the Landlord requires a Security Deposit of the Lessee and if so, its amount. This is the amount of money the Landlord will hold in reservation in case the Lessee damages the premises or is financially responsible for an unpaid amount. This is a common requirement and indicating its status will be handled by marking one of two checkboxes in this item. The first choice shall release the Lessee from this obligation. Thus, if the Lessee is not required to submit a security deposit, mark the checkbox attached to the wording “The Lessee Shall Not Be Required To Pay…” If this is the case, then you may proceed straight to Step 12.

If the Lessee must surrender a security deposit to the Landlord then, you must skip the first choice (discussed above) to select the second checkbox. Notice that this checkbox is attached to the dialogue “The Lessee Shall Be Required To Pay…” If this is your choice, you must proceed to deliver additional information by defining the security deposit required of the Tenant. Present it in writing on the first blank line of this choice then supply it numerically on the blank line with the dollar sign.

The final requirement of this choice is to define the time limit placed on the Lessor to return the security deposit if the lease has successfully ended and the Tenant has upheld the obligations place on this role. Record this time limit as a number of days after the official end of the lease term on the blank line between the words “…Within” and “Days…”

 

 

Step 12 – Formally Declare What Constitutes A Late Rent Payment

Unfortunately, at times the Tenant may not be able to submit the rent payment on the predetermined due date. The seventh article, bearing the label “7. Late Fee.,” will require you produce a number declaring how many days after the due date an unpaid rent will be declared officially late. A blank line has been presented for this purpose.

Step 13 – Report The Results Of A Late Payment

The Landlord may opt to refrain from applying a penalty on late rent payments. If so, then place a mark in the checkbox labeled “Not Charge A Late Fee.”

If the Landlord will apply a penalty upon the Tenant for a late rent payment, then you must select the second checkbox. This selection will need some further definition. That is, in addition to solidifying that a late penalty will be placed on the Tenant we will need to report what that penalty shall consist of.  For instance, if the Landlord will apply a late penalty as a flat dollar amount then you must mark the second checkbox. You will also need to mark the first option in this choice, fill in the dollar amount (as wording then as a number), and indicate if this will be charged every “Day” the Tenant is late or upon every occurrence. In the example below, the Tenant will be charged $150.00 once every time he or she late is late with the rent or by “Occurrence.”

The second type of late fee the Landlord may apply is one that is a percentage based on the owed or late amount. If this is the case, then mark the checkbox “Charge A Late Fee…” and record the exact percentage that will be applied as a late fee by the Landlord. This penalty statement also requires to indicate if this will be charged every “Day” the Tenant is late or just once each time. In our example (below) the Landlord will impose a five percent penalty only once every time the Tenant is late.

 

 

Step 14 – Discuss Renewal Option For This Lease

This document will need to include the subject of renewal to its definitions. Many agreements will enable the Tenant to continue their current lease either with or without additions to the rent. Article “8. Renewal Options” displays two statements, each defining an option. If the Landlord has decided not to afford the Tenant an option to renew this agreement, then you must mark the first checkbox in this article (and proceed to Step 15).

If the Lessor will give the Tenant the option to renew this agreement after it has completed successfully then you must mark the second checkbox in this article. This requires you supplement its language with the number of days (before the termination date) the Tenant must give as notice of the intent to renew. Do so on the space after the dialogue “Providing At Least”

 

 

Additionally, the number of times the Tenant may renew the lease must be produced on the space after the wording “The Lessee Shall Have…”

 

 

Now several “Renewal Period” statements have been supplied to this selection so that you can quickly report the details of each renewal allowed. The initial 2 available lines of one of these statements expect the start date of the initial renewal period. The next two available spaces request that you furnish the last calendar date the renewed lease is in effect (its termination date).  The final two blank spaces request that the rent amount applied to each “Renewal Period” statement is submitted to the appropriate area.

 

 

Step 15 – Record The Upfront Payment Required

Article 9 will request a discussion on the monies the Tenant or Lessee must submit to the Landlord upon the execution of this agreement. Three checkbox descriptions have been included in this article; you may check as many that apply. You must also submit some basic information for the ones you select. The first checkbox should be chosen to indicate that the Tenant must submit the “First Month’s Rent” when this document is signed and thus executed. Keep in mind that if you’ve indicated that the “First Month’s Rent” is due to the Lessor, then you must identify the sum of money that will be considered “First Month’s Rent” on the blank lines directly after this label. Make sure to report it first written out and then numerically on the spaces available.

Mark the second checkbox if the “Last Month’s Rent” must be paid at the signing of this lease. Any amount to be submitted as the “Last Month’s Rent” for this lease must be named as such in this selection. Use the two available lines to write out the “Last Month’s Rent”

If a “Security Deposit” was set as a requirement and is an expected submission at this document’s signing, then you must mark the third checkbox. The amount of money required as security should be indicated if it is due at the signing. Record this information on the two blank lines provided in the requested format.

 

Step 16 – Declare The First Day The Tenant May Occupy The Premises

The first calendar date when the Tenant may physically occupy the premises and begin operating according to its defined “Use” is the topic of discussion in the article “10. Possession.” Use the two blank calendar lines in the paragraph statement to document the first calendar date of the Tenant’s occupancy or possession of the premises. Keep in mind the contents of this article will declare that any delay shall be prorated rather than causing an extension of the lease.

 

 

Step 17 – Submit The Insurance Coverage The Lessor Must Maintain

As with any property and business, a concern of liability will be expressed by both parties regarding incidents where someone is hurt or dies on the property or when the property has been damaged. The next item we shall focus on, “11. Lessor Indemnity And Liability Insurance,” will seek out the single limit coverage the Lessor (Landlord) must obtain to protect and compensate the Lessee when subjected to such events. It is important that each type of coverage is officially recorded as a part of this agreement. First, seek out the two blank lines preceding the words “For Injury,” then document the amount in coverage the Lessor is required to maintain for the Tenant for the duration of the lease. This should be recorded as a written amount and as a numerical amount on the lines before and after the dollar sign (respectively). You will need to do the same to report the coverage the Lessor must obtain “…For Death Of Persons” and “…For Property Damage.”

 

 

Step 18 – Assign The Proportionate Share If More Than One Tenant Is On The Property

In some cases, especially on a large property, the Landlord may spit up the property to lease as two or more separate premises. If this is the case, the Landlord must solidify the percentage of floor space the Tenant is leasing based on the total floor space of the entire property under the Landlord’s control. The two spaces placed in “12. Proportionate Share” will require a written report on what this percent is as well as a numerical entry. Notice, the line in the parentheses is attached to a percent sign and will require the numerical value of the percent as its entry.

 

 

Step 19 – Specify When The Landlord May Advertise On The Premises To Gain Replacement Tenants

While we have discussed renewal options available, we have not yet dealt with the Landlord’s need to continue gaining rent for the premises should this lease terminate. One effect of such terminations is that the Landlord will need to advertise that a lease is available for the concerned premises. This may require the placement of a “For Rent Sign” within its boundaries. In the thirteenth article of this agreement (“13. Lessor’s Right Of Entry”), we must document the number of days before the concerned date of termination when the Landlord may access the property purely for the placement of such advertising. The blank space following the phrase “During The Last” and preceding “Days Of The Term…” has been placed so you may record this number or days appropriately.

 

 

Step 20 – Supply How Much Notice Is Required If The Landlord Terminates As A Response To (Natural) Destruction

Unfortunately, natural disasters and other dangers to a property may occur thus damaging the premises beyond a point where it can be repaired or rebuilt by the Landlord’s efforts or resources. If this happens and the Landlord wishes to terminate this agreement rather than attempt to repair or rebuild the property, then this lease will be considered terminated as of the calendar date when this destruction happened. However, the Lessor must give the Lessee notice of this intent within a certain number of days of the property’s damage or destruction. Produce this number of days on the blank space presented in “14. Damage By Casualty.”

 

Step 21 – Further Address The Topic Of Notices

Several articles in this document have called attention to required notices either from the Lessor to the Lessee or vice versa. Therefore, we must formally set the mailing address where each party can assure a notice sent will be received. The fifteenth item, designated with the bold word “Notices,” presents a distinct area where this can be accomplished. The empty line attached to the word “Lessor” requests that you supply the notice mailing address of the Landlord. This will be the address the Lessee will be required to send all his or her notices concerning this lease to.

Similarly, the “Lessee” line requires the complete mailing address where the Tenant requires any notice sent from the Lessor (pertaining to the agreement or the premises) to be sent.

 

Step 22 – Make Sure This Lease Covers All The Topics Of The Agreement At-Hand

It bears mentioning that this agreement can only hold the Lessor and the Lessee obligated to upholding its contents. Before we proceed, any “Additional Terms And Conditions” that both Lessor and Lessee wish included directly in the wording of this document must be set before they execute this form. Use the space in “37. Additional Terms And Conditions” to record them exactly as both parties wish. If you need more room, you have the option of either inserting more lines for your use or continuing in an attachment. If there are no such additions then you may leave it blank or indicate that no additional terms exist.

 

 

Step 23 – Produce A Report On All Attached Documents

Regardless of its nature or contents, all documents that must be included with this agreement (i.e. disclosures, additional provisions, inspection results, etc.) must be named as such. The areas in on display in “38. Attachments” will give a predefined way to name them. Simply mark the box next to one of the “Attachment” labels then input the title of the attached document on the blank line that follows. You may select as many checkboxes as you like but once you do, you are required to make certain to list the attachments on the line that follows and attach a hardcopy of each document you named to this paperwork.

 

 

Step 24 – The Landlord Must Formally Accept The Lessor Role In This Agreement

The Landlord must supply acknowledgment and acceptance of the terms listed in this contract. This entity must provide the “Lessor’s Signature” and “Print Name” lines with the signature and printed name of the Landlord. This can only be performed by the Property Owner, Landlord, or the Signature Representative of the business entity that owns the property. Immediately upon supplying these two lines with the authorizing signature and the name of the party able to provide it, the Landlord Signature Party must produce the current calendar “Date” on the line adjacent to the signature.

 

 

Step 25 – This Lease Requires The Tenant’s Official Signature

The Lessee of this agreement, or the Tenant, will need to attend the “Lessee’s Signature” line then the “Print Name” line in the next signature area by signing his or her name then printing it in the provided areas. Additionally, the Lessee must signify when he or she entered this lease by documenting the current “Date” on the next line.

 

 

Step 26 – The Attending Agent Must Sign This Paperwork

If an Agent has been involved with the lease that we have developed, then he or she must also present items on the “Agent’s Signature” and “Print Name” lines in the final signature area. After signing the above line and printing his or her name, the Agent must fill in the “Date” when these actions were performed on the remaining line.

 

 

Step 27 – Proof Of Notarizations Is Available And Required

The Signature Parties of this agreement must present it to the Notary Public who has observed this signing. This party will use his or her credentials to verify that each of the Signers above was indeed present to sign this document in the Notary’s office. This will involve the documentation of the concerned date, location, and parties in attendance through Notary’s signature and stamp. A standard notarization form has been included at the end of this paperwork for the use of the Notary. No other party may utilize the “Notary Acknowledgement” section save for the Notary Public providing the observation and notarization.

 

Related Agreements

Co-Working Lease – For independent contractors that primarily work online to rent shared office space with limited amenities.

Gross Lease – Commercial lease where the tenant only pays a fixed monthly rent amount along with their utilities. The landlord pays for all property maintenance, taxes, and insurance.

Modified Gross Lease – Commercial lease where the tenant pays a portion of the expenses related to the property.

Office Lease – Commercial lease designated for professional use and services.


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