What is a Commercial Net Lease?
A Commercial Net Lease is defined as a part of a commercial lease that requires a tenant to pay part or all of the taxes, fees and maintenance costs for a property, in addition to the rent. These expenses can be change depending on the needs of a building’s tenants, but could include property taxes, insurance, maintenance, repair, and operations and utilities. A Net Lease differs from a Gross Lease, where the property owner agrees to pay these types of expenses and the tenant pays only a fixed fee every month. For properties that are leased by more than one tenant (e.g. a shopping centre), the net lease expenses are usually pro-rated and based on the size of the area occupied by each tenant.
There are five common types of net leases:
- Single Net Lease: The tenant is responsible for paying property taxes
- Double Net Lease: The tenant is responsible for paying the property taxes and building insurance.
- Triple Net Lease: The tenant is responsible for paying all the real estate taxes, building insurance and maintenance, in addition to any normal fees in the lease agreement (e.g. rent, utilities, etc.)
- Bondable Lease: Also known as an “absolute triple net lease,” or “hell-or-high-water lease,” where the tenant carries every possible real estate risk associated with the property, such as rebuilding after a casualty (regardless of insurance proceeds) and the payment of rent after partial or full condemnation.
- Ground Lease: The landlord leases the land to the tenant, giving them the opportunity to construct a building. In this agreement the tenant will generally pay for the same items they would in a Triple Net Lease or Bondable Lease and at the end of the agreement the property would still be owned by the landlord.
Commercial Net Leases: What’s in it for the Landlord and Tenant?
Landlords use net leases so they no longer have to manage taxes, insurance, and fees, and they may charge less rent as a result. While tenants may not have to pay as much rent they are required to pay taxes and fees regardless of how well their business performs, increasing the risk of this type of commercial property lease.
Return to the main Glossary of Commercial Leasing Terms