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Net Lease Definitions

Understanding Lease Definitions

There is some confusion in lease terms in the market and it is usually the first item of diligence to arise. Tencal addresses this issue immediately before any unnecessary time is spent as lease terms can affect decisions in acquisition or financing. Lease definitions are as follows:

Gross Lease:  The tenant pays a set sum or “gross” amount for rent and the landlord pays all real estate expenses.

Net Lease: Generally a lease in which the tenant pays for utilities, and property taxes in addition to rent or insurance. The landlord pays for maintenance, repairs, and the property taxes or insurance not paid by the tenant. Also referred to as a single net lease or modified gross lease.

NN (Net Net Lease): Generally a lease in which the tenant pays for utilities, property taxes, and insurance in addition to the rent, and the landlord pays for maintenance and repairs. Also referred to as a double net lease, NN and modified gross lease.

NNN (Net Net Net Lease): A net lease under which the lessee assumes all expenses of operating a property, including both fixed and variable expenses and any common area maintenance that might apply. However, the landlord is responsible for structural repairs. Referred to as a triple net lease or NNN and stated as a fully net lease.

Absolute NNN/Bonded Lease: No landlord responsibilities. Tenant is responsible for taxes, insurance, maintenance (including roof & structure).

Absolute Net Lease: A lease in which the tenant pays all expenses including structural maintenance repairs; usually a long-term lease to a credit tenant.

Absolute Net Bond Lease: Tenant is responsible for all expenses, including casualty and condemnation.

There are several ways participants in the industry state lease terms. Some are correct, some are incorrect and some terms have the same meaning. Gross leases and modified gross leases associated with commercial real estate involve greater landlord responsibilities. At TenCal we are comfortable with all types of leases yet our focus is on acquiring properties that have Triple Net (NNN) characteristics with creditworthy tenants. 

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