What Is the Difference Between a Triple Net Lease and a Modified Gross Lease?
by Solomon Poretsky
Office space is frequently leased on a triple net basis.
Common Area Maintenance
Both triple net and modified gross leases typically have the tenant paying for their share of Common Area Maintenance. CAM is the cost of maintaining the shared areas of the building. In an office building, for example, CAM would include such things as vacuuming the halls, maintaining the lawn and striping the parking ramp, since every tenant shares those amenities and benefits from them. It can also include things that benefit individual tenants but are billed to the building. For example, many buildings with a single meter include their overall water bill in their CAM charges even though tenants may have their own plumbing fixtures.
When a 20,000 square foot building has three tenants -- one in 11,000 rentable square feet, one in 7,000 rentable square feet and one in 2,000 -- and gets one property tax bill, how does it get divided up? Most modified
gross and triple net leases specify that tenants pay those charges on a pro rata basis. In other words, the percent of the charge that they pay depends on the percent of of the building that they occupy. So, in the above building, the larger tenant would pay 55 percent of the tax bill, the mid-sized one, 35 percent, and the small one, 10 percent.
Triple Net (NNN) Leases
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