Triple Net Office (NNN) Lease Agreement (OLA)
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A Triple Net Office (NNN) Lease Agreement (OLA) is an OLA agreement where the office tenant is responsible for paying all property taxes (real estate taxes), building insurance expenses, and maintenance expenses (on top of any normal OLA fees).
- Context:
- It can indicate that the tenant is responsible for common area maintenance (CAM) fees, such as landscaping and cleaning of shared spaces.
- It can require the tenant to pay property taxes, including any increases that may occur during the lease term.
- It can include the tenant's obligation to obtain and maintain insurance coverage for the building.
- It can specify that the tenant is responsible for repairs and maintenance of the leased space, including structural repairs and maintenance of HVAC systems.
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- Example(s):
- A Commercial Office Building Triple Net Office Lease Agreement where the tenant is responsible for paying property taxes, insurance, and maintenance costs in addition to the base rent.
- A Single Office Unit Triple Net Office Lease Agreement within a larger office complex where the tenant is responsible for all property expenses, including common area maintenance and repairs, such as:
- An Absolute Triple Net Lease where the tenant assumes virtually all risks and responsibilities of the building, including roof and structure, and sometimes even bearing the cost of rebuilding after a catastrophe.
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- Counter-Example(s):
- a Double Net Lease (NN): The tenant is responsible for property taxes and building insurance, but not for maintenance and repairs of the building structure and common areas. These are typically the landlord's responsibility.
- a Single Net Lease (N): The tenant pays property taxes along with the base rent. Building insurance and maintenance costs are typically the landlord's responsibility.
- a Gross Lease (Full Service Lease): The tenant pays a single, lump sum rent, and the landlord pays for all the property expenses, including taxes, insurance, and maintenance. Utilities and janitorial services may also be included.
- A Full Service Office Lease Agreement where the landlord covers all property expenses, including taxes, insurance, and maintenance.
- a Modified Gross Lease: A middle ground between a gross lease and a net lease. The tenant and landlord negotiate which expenses each party will cover. This can vary significantly depending on the agreement.
- a Percentage Lease: Common in retail, especially in malls. The tenant pays a base rent plus a percentage of their revenue. The landlord may cover most property expenses.
- See: Office Lease Agreement Article, Office Lease Agreement Clause, Office Lease Agreement Provision.
References
2023
- (GBard, 2023) ⇒ GBard. (2023). "A Triple Net Office (NNN) Lease Agreement (OLA): Overview and Key Elements."
- Context:
- A Triple Net Office Lease Agreement is a type of Commercial Lease Agreement in which the tenant agrees to pay all of the expenses associated with the property, including real estate taxes, building insurance, and common area maintenance (CAM) fees, in addition to base rent.
- This type of lease is often preferred by landlords because it shifts the responsibility for property expenses to the tenant, making it easier for the landlord to budget and manage their investment.
- Key Elements:
- Base Rent: The fixed amount of rent that the tenant pays to the landlord on a monthly or annual basis.
- Real Estate Taxes: The tenant's share of the property taxes assessed on the entire building.
- Building Insurance: The tenant's share of the insurance premiums for the building's structure and contents.
- Common Area Maintenance (CAM) Fees: The tenant's share of the expenses for maintaining the common areas of the building, such as hallways, restrooms, landscaping, and parking lots.
- Term of the Lease: The length of time that the tenant will occupy the premises.
- Renewal Options: The tenant's right to extend the lease for one or more additional terms.
- Default Provisions: The conditions that will result in the termination of the lease, such as non-payment of rent or breach of other lease terms.
- Benefits for Landlords:
- Reduced Risk: Landlords are not responsible for property expenses, which can fluctuate from year to year.
- Predictable Income: Landlords know exactly how much income they will receive from the lease, as the tenant is responsible for all expenses.
- Reduced Management Burden: Landlords do not need to manage the payment of property taxes, insurance, or CAM fees.
- Benefits for Tenants:
- Transparency: Tenants know exactly what their total occupancy costs will be.
- Control over Expenses: Tenants have control over how much they spend on CAM fees by adhering to building guidelines and reducing their impact on common area maintenance costs.
- Potential for Longer Lease Terms: NNN leases often have longer terms than other types of commercial leases, which can provide stability for tenants and allow them to make long-term plans for their business.
- Considerations before Entering an NNN Lease:
- Financial Stability: Tenants need to carefully assess their financial situation to ensure they can afford the base rent and additional expenses associated with an NNN lease.
- Understanding of CAM Fees: Tenants should thoroughly review the CAM fee structure and understand how it is calculated to avoid surprises.
- Negotiation Skills: Tenants should be prepared to negotiate the terms of the lease, including base rent, CAM fees, and renewal options.
- Context: