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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:
- Utilities
- Repairs
- Property taxes
- Insurance
- Landscaping
- 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.
Click here for more information about net leases.
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
- Insurance
- Maintenance
- Repairs
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
- Banks
- Warehouses
- 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 .
Image via Pexels by Laura Tancredi
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.
Get Help With Net Leases
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Meet some of our Net Lease Lawyers
January 31, 2022
Cecilia O.
San Antonio
15 Yrs Experience
Licensed in CT, MD
Ghana School of Law
With 15 years of extensive transactional/contracts experience reviewing and negotiating commercial contracts including a wide variety of purchase orders and contracts and non-disclosure agreements (NDA), I believe I can immediately contribute to the continued success of your team. I have been commended for a range of valuable skills—excellent contract management and contract administration, legal research, risk analysis, drafting and negotiations, and strategic thinking. I have worked as a legal consultant for 10+ years and I have reviewed over 7,500 contracts through this position. Contracts I have reviewed include but not limited to purchase orders, commercial and construction contracts, equipment rental agreements, non-disclosure, confidentiality, vendor agreements, service agreements, site access agreements, international agreements, request for proposals (RFP), bids and government contracts. These experiences have enabled me to master the ability to work independently and expeditiously to identify and assess issues and provide legally sound recommendations, consistent with good business practices. I have led teams (sales, insurance and management) to successfully negotiate contract terms with customers. Effective Communicator and Negotiator. I am a people person, and for the past 13 years, I have acquired excellent oral and written communication skills that enable me to interact and negotiate effectively with stakeholders at all levels. I am a self-starter with a strong work ethic. I have a high degree of resourcefulness, diligence, and dependability. Most important, I adapt to changing priorities quickly, thriving in an environment with high volume and short turnaround deadlines. My experience over the years allows me to transfer my skills to all types of contracts to meet the client’s needs. I am hopeful to provide similar legal expertise, effective contract administration and leadership to your organization. It would be a pleasure to meet within the next few weeks and discuss how my qualifications, experience, and capabilities will best fit the needs of your outfit.
Mathew K.
Illinois
7 Yrs Experience
Licensed in IL
DePaul University College of Law
Kerbis' practice includes business and real estate transactions, estate planning, and limited scope litigation consulting. Mathew has negotiated deals involving multinational corporate franchises and has collectively helped hundreds of clients with their transactional, civil litigation, and appellate legal needs. Throughout his tenure as an American Bar Association leader, Mathew has advocated for legal education reform, interviewed ABA Presidents and State Appellate and Supreme Court Justices, and lobbied Congress on behalf of the legal profession. As a law student, Mathew served as an extern for the Honorable Justice Robert E. Gordon of the Illinois Appellate Court, First District.
Tina R.
Arlington, VA
15 Yrs Experience
Licensed in DC, IL, VA
Loyola University Chicago
15 years for legal experience; expertise in contracts, healthcare, ERISA, physicians, financial services, commercial contracts, employment agreements, etc. I am adept at all contracts and can provide you with efficient and quality services. I have worked at a law firm, financial services company, consulting ,and non-profit.
February 7, 2022
Antoine D.
Fort Lauderdale
6 Yrs Experience
Licensed in FL
Howard University School of Law
In his firm, Talented Tenth Law, Antoine focuses on helping people maximize their protection and prosperity in the courtroom and the boardroom. His firm’s services include representing people in lawsuits involving breach of contract, many types of civil lawsuits and helping business owners win government contracts among other things.
February 7, 2022
Tom L.
Houston
15 Yrs Experience
Licensed in TX
Louisiana State University Law Center
Tom is a former chief legal officer of public and private companies. He has extensive experience in mergers & acquisitions, commercial transactions, joint ventures, finance, securities laws and general corporate law across a broad range of industries, including construction, consumer products, e-commerce, energy and healthcare. As an attorney who practiced at two different Top 50 international law firms, he can deliver "Big Law" service at a competitive price. Prior to becoming a lawyer, Tom served as an officer in the U.S. Army and attained the rank of Captain. He served a tour in Iraq where he led a reconnaissance platoon and was awarded the Bronze Star Medal.
Craig Y.
New York
26 Yrs Experience
Licensed in NY
New England Law - Boston
Craig E. Yaris is a partner at Parlatore Law Group, with the experience and drive to handle all your Franchise, General Business Practice, and Mediation needs. As a former small business owner and Chief Operating Officer of a franchisor himself, Mr. Yaris is passionate about promoting business growth. He has experience handling daily operations, employee disputes, and negotiations of pertinent contracts for a franchise company with 100 locations in five states, where he organized and conducted semi- annual meetings to educate and inform franchisees of best practices for improved growth. In addition, Mr. Yaris was responsible for the preparation and filing of the UFOC (Uniform Franchise Offering Circular) in several states and is well-versed in business formation. Between his time as Franchisor and Conflict Resolution Specialist, Mr. Yaris was the Co-Founder and Chief Operating Officer of an online company whose goal was to help inform marketers and business owners of the fast-paced and ongoing changes within their specific verticals. This experience helped him hone his research and writing skills and prepared him for the cloud-based aspects of Parlatore Law Group. Mr. Yaris also has extensive experience in public speaking, as he has planned and delivered several keynote addresses and educational seminars for many New York-based organizations, and as a Continuing Education Instructor for Hofstra University. Prior to joining Parlatore Law Group, Mr. Yaris worked as a Patient Advocate, and more recently, a Conflict Resolution Specialist, where he mediated and resolved disputes on behalf of patients with insurance companies. In this role, he negotiated for coverage of previously denied medications and medical procedures as well as successfully mediated disputes between individuals and business partners which would have otherwise resulted in protracted litigation. In addition, he has experience mediating employer and employee disputes as well as helping resolve family conflict. He has also studied and attended many Non-Violent Communication (NVC) workshops and strives to bring these tools and methods to all of his mediations. His variety of experiences speak to his ability to handle small business needs at all stages of business growth and development. Mr. Yaris also has experience with business growth and development, as he has worked with several small business on creating and implementing strategies for steady growth. In addition, to spending time with family, Mr. Yaris volunteers his time helping spread the message of the ACLU and he supports many local charities focused on families and children. He is admitted to practice in New York.
February 9, 2022
Amy P.
Edmonds, WA
18 Yrs Experience
Licensed in WA
The University of Montana School of Law
Amy has served as outside general counsel and litigator to established businesses throughout western Washington since 2010. Her passion and focus is providing the best possible representation for clients in the construction, transportation and hospitality industries.
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