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What is a Net Lease?
A net lease is a legal contract for leasing commercial real estate. In this type of lease agreement, the tenant pays for both the rental space and additional expenses that may include:
- Property taxes
- Snow removal
Net leases are very appealing to landlords because landlords can split the property's costs with the tenant. Tenants may also benefit from net leases because typically rent payments are lower due to the additional costs associated with the lease.
There are four different types of net lease:
- Single net lease
- Double net lease
- Triple net lease
- Modified net lease
Triple net leases are the most common type of net lease, and often if you hear the term "net lease," it refers to a triple net lease.
Net leases are negotiable, and it is crucial to ensure that all aspects of the agreement are documented in a detailed lease agreement . Tenants can include caps on their net lease agreement that set a maximum amount they are responsible for paying.
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Difference Between Gross Lease and Net Lease
A gross lease, sometimes called a "full-service lease," is the opposite of a net lease and is most commonly found in residential real estate or when a single building shares multiple tenants. In a gross lease, tenants are only responsible for a set rent payment, and then the property owner is responsible for all additional fees and expenses. Some gross leases will stipulate that the tenant is required to pay utilities; however, the landlord almost always covers the following costs:
- Property taxes
When operating under a gross lease, landlords tend to charge more for rent than a net lease because the landlord is taking on all responsibilities for additional expenses.
Gross leases are appealing for tenants because they have the simplicity and consistency of a set rent payment every month. In addition, the tenant isn't responsible for any property maintenance or repairs.
Types of Net Leases
There are four types of net leases. It is common to see all of them used in commercial real estate; however, a triple net lease is the most common.
Single Net Lease
A single net lease, also called an N Lease, requires that the tenant pay rent and property taxes. This is the net lease with the least amount of risk for the tenant because the taxes are paid through the landlord, who ensures that the tax payments are made on time.
Double Net Lease
In a double net lease, or an NN lease, the tenant pays rent, property taxes, and insurance on the property. The landlord is responsible for all maintenance and repairs on the property. Like in a single net lease agreement, taxes and insurance are usually paid directly to the landlord, ensuring that the payments go to the correct places on time.
Triple Net Lease
When operating under a triple net lease, or an NNN, the tenant pays rent, property taxes, insurance, and additional expenses. This lease provides landlords with the least amount of responsibility for the property. Generally, the base rent will be considerably less in this type of lease because the tenant has to pay for all additional expenses associated with the property.
Modified Net Lease
A modified net lease falls somewhere between a triple net lease and a gross lease. This type of lease has special conditions in which the terms are negotiated to suit the needs of both the landlord and the tenant.
Net Lease Examples
Two examples of net leases can include single-tenant net leases and multi-tenant net leases. Both of these lease agreement examples provide the landlord and tenant with unique benefits.
Single-Tenant Net Lease Example
A single tenant net lease is often a triple net lease and is abbreviated to "STNL" or "NNN." In this lease agreement, the entire property is leased to only one lessee, and the lessee is solely responsible for all property expenses . In this situation, the landlord has little to no responsibility regarding the property.
This type of lease is often seen in real estate investments where the owner doesn't actively manage the property. A benefit of this type of lease is that they are often long-term leases with terms of 10 or more years.
Single-tenant net leases are most often seen utilized for the following property types:
- Fast food restaurants
- Office space leases
- Convenience stores
- Gas stations
- Big box stores
- Retail stores
Multi-Tenant Net Lease Example
Multi-tenant net leases are usually double net lease agreements and are used when one building has more than one tenant. Each tenant will have their own net lease agreement with the landlord in which the tenant pays rent, property taxes, and insurance.
Examples of properties that commonly have multi-tenant net leases include:
- Retail strip malls
- Shopping malls
- Apartment complexes
- Healthcare centers
- Office buildings
Landlords generally see higher yields from a multi-tenant property; however, more work is involved because the landlord has to manage several leases and is still usually responsible for maintenance and repair costs for the property.
Multi-tenant lease agreements tend to be for shorter durations than single-tenant agreements, and it is rare to see a multi-tenant lease agreement longer than seven years.
For more information about commercial real estate, click here .
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When To Use a Net Lease
Net leases are most commonly used by real estate investors who want to buy properties and reap the financial benefits of real estate ownership without the work of maintaining a property. For this reason, a landlord doesn't mind accepting a lower rent payment because they don't have the headache of property management.
Essentially, property owners use net leases to shift the burden and responsibility of taxes, insurance, maintenance, and repairs to the tenant. In return, the tenant pays a reduced rental rate and usually benefits from a long-term lease.
Read this article for more information about when to use a net lease.
What is Included in a Net Lease
Net lease agreements can be negotiated, so both the landlord and the tenant are accommodated. It is essential to ensure that the net lease agreement details all negotiations and clearly documents who is responsible for what expenses.
Lease agreements will vary depending on the landlord, tenant, and property type; however, most leases include the following essential terms:
- Agreement Date. Date the agreement is made
- Names and contact information for the landlord and the tenant
- The physical address of the property to be leased
- Property Description. A description of the property, including square footage
- Property Use. A description of what the tenant's use of the property will be
- Lease Term. When the lease will begin, end, and renewal options
- Rent Payments. Amount and frequency the tenant will pay rent including what constitutes late rent and amount of late fee if any
- Rent Increases. Information about rent increases
- Security Deposit. Security deposit requirements
- Insurance coverage the tenant is required to maintain
Because this document is so important and must be written correctly, many landlords consult with a real estate lawyer to ensure the lease agreement includes all necessary terms.
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Meet some of our Net Lease Lawyers
I enjoy helping businesses of all sizes succeed, from start-ups to existing small and medium sized businesses. I regularly advise corporate clients on a variety of legal issues including formation, day to day governance, reviewing and drafting business contracts and other agreements, business acquisitions and sales, as well as commercial and residential real estate issues, including sales, purchases and leases. As an attorney licensed in both Michigan and Florida, I also advise clients on real estate issues affecting businesses and individuals owning real property in either state, whether commercial, residential or vacation/investment property. I also regularly assist nonprofit organizations in obtaining and maintaining tax exempt status, and provide general legal counsel on all matters affecting public charities, private foundations and other nonprofit organizations.
Pura Rodriguez, JD, MBA is the President and Managing Partner of A Physician’s Firm, based in Miami. She represents healthcare providers from different specialties in a broad range of issues, including contract review, business planning and transactions, mergers and acquisitions, vendor and contract disputes, risk management, fraud and abuse compliance (Anti-Kickback Statute and Stark), HIPAA compliance, medical staff credentialing, employment law, and federal and state regulations. She also assists providers in planning their estates, protecting their assets, and work visa requirements.
Jaclyn is an experienced intellectual property and transactional attorney residing and working in NYC, and serving clients throughout the United States and internationally. She brings a targeted breadth of knowledge in intellectual property law, having years of experience working within the media, theater, PR and communications industries, and having represented clients in the music, entertainment, fashion, event production, digital media, tech, food/beverage, consumer goods, and beauty industries. She is an expert in trademark, copyright, and complex media and entertainment law matters. Jaclyn also taught as an Adjunct Professor at Cardozo School of Law, having developed and instructed the school’s first Trademark Practicum course for international students. In her spare time, Jaclyn’s passion for theater and love for NYC keeps her exploring the boundless creativity in the world’s greatest city!
A bilingual attorney graduated from J.D. with a C.P.A. license, an M.B.A. degree, and nearly ten years of experience in the cross-border tax field.
Experienced and business-oriented attorney with a great depth of contract experience including vendor contracts, service contracts, employment, licenses, operating agreements and other corporate compliance documents.
With over 21 years of practice, Chet uses his vast experiences to assist his clients in the most efficient manner possible. Chet is a magna cum laude graduate of University of Miami School of Law with an extensive background in Business Law, Commercial Real Estate, Corporate Law, Leasing Law and Telecommunications Law. Chet's prior experience includes 5 years at two of the top law firms in Georgia and 16 years of operating his own private practice.
Steve Clark has been practicing law in DFW since 1980. He is licensed in both Texas and Louisiana state and federal courts. He concentrates his practice on business clients and their needs. He has been a SuperLawyer in Texas since 2011, and is Lead Counsel rated in Business Law. He is also a Bet the Company litigator in Texas.