The term “triple net lease” refers to a commercial lease in which the basic rental rate (which is almost always quoted on a per sq ft, per annum basis) is what the landlord “nets” in his pocket. In a triple net lease, the landlord will outlay for many of the operating costs, such as property taxes, insurance, waste removal, utilities in common areas, et cetera, but then charges these back to the tenant as “additional” rent.
Often a lease will be quoted as $X/per sq ft “plus, triple net” and the triple net refers to those extra operating costs charged to the tenant as “additional rent.”
Typically, the monthly operating costs or additional rent is estimated (based on previous years) at the beginning of the lease term or calendar year and then charged monthly to the tenant. At the end of each lease or calendar year, the lease generally stipulates that the landlord is required to do an annual “reconciliation” of estimated to actual operating costs and then either repays the tenant any surplus (overpayment) or charges the tenant for any deficit (underpayment).
Often the surplus or deficit at year end will be adjusted in the subsequent month's rent.
The opposite of a triple net lease is a gross lease, where all the operating costs for the building are included in the rent. In a high inflation environment, such as we are currently experiencing, it is preferable to a landlord to have a triple net lease and preferable to a tenant to have a gross lease (where all costs are fixed and included in the rent).
Nick Bodie is a senior real estate advisor and licensed realtor (commercial) in the qathet region.
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