"$20 NNN" refers to a common commercial lease structure where the tenant pays a base rent of $20 per square foot per year, in addition to their share of three specific property-related expenses: property taxes, property insurance, and common area maintenance (CAMs).
This type of arrangement is known as a Triple Net (NNN) lease, and it's frequently used for commercial properties like retail spaces, industrial buildings, and offices. It provides a clear distinction between the base rent and the operational costs associated with the property.
Understanding Triple Net (NNN) Leases
A Triple Net lease shifts a significant portion of the property's operating expenses from the landlord to the tenant. The "NNN" in the lease term specifies these additional costs that the tenant is responsible for.
Breaking Down the "Triple Net"
The three "N's" represent distinct categories of expenses:
| Net Component | Description | Tenant's Responsibility |
|---|---|---|
| First N | Property Taxes: These are the real estate taxes assessed by local government authorities on the property. | The tenant pays a pro-rata share of the total annual property taxes for the building or complex. |
| Second N | Property Insurance: This covers the cost of insuring the physical structure of the building against damage (e.g., fire, natural disasters). | The tenant pays a pro-rata share of the building's property insurance premiums. |
| Third N | Common Area Maintenance (CAMs): These are the costs associated with maintaining the shared areas of a commercial property that all tenants benefit from. | The tenant pays a pro-rata share of expenses for areas like parking lots, landscaping, security, restrooms, and utilities for common spaces. |
These "net" expenses are separate from, and added on top of, the base rental rate.
What the "$20" Represents
The "$20" in "$20 NNN" typically denotes the base rental rate for the leased space, expressed in dollars per square foot per year ($/SF/year). This is the core rent for the physical space itself, before any additional NNN charges are applied.
For example, if a business leases a 2,500 square foot retail space at $20 NNN:
- Base Annual Rent: $20/SF/year * 2,500 SF = $50,000 per year.
- This translates to a base monthly rent of $4,166.67 ($50,000 / 12 months).
However, this $4,166.67 is not the total amount the tenant would pay monthly, as the NNN charges would be added to it.
How NNN Leases Impact Tenants
NNN leases offer several considerations for tenants:
- Variable Total Costs: Unlike a "Full-Service Gross" lease where a single rental rate covers most expenses, the total monthly payment for an NNN lease can fluctuate. Changes in property taxes (due to reassessments), insurance premiums, or CAM expenses directly impact the tenant's bill.
- Greater Responsibility: Tenants in NNN leases take on more financial risk and responsibility for the operational costs of the property.
- Transparency: It's crucial for tenants to understand how CAM charges are calculated and what they include. Leases should detail provisions for caps on annual CAM increases or administrative fees.
- Budgeting: Businesses must budget not only for the base rent but also for these variable operating expenses, which can be estimated annually by the landlord.
Calculating Total Rent in a NNN Lease
To determine the total monthly or annual rent under a NNN lease, you'll combine the base rent with the estimated NNN costs.
Here's a simplified example:
-
Determine Base Annual Rent:
- Lease Rate: $20/SF/year
- Space Size: 2,000 SF
- Base Annual Rent: $20/SF/year * 2,000 SF = $40,000
-
Estimate Annual NNN Costs:
- Assume estimated NNN expenses are $6.00/SF/year (e.g., $2.50 for taxes, $1.00 for insurance, $2.50 for CAMs).
- Total Annual NNN Cost: $6.00/SF/year * 2,000 SF = $12,000
-
Calculate Total Annual Rent:
- Total Annual Rent = Base Annual Rent + Total Annual NNN Cost
- Total Annual Rent = $40,000 + $12,000 = $52,000
-
Calculate Total Monthly Rent:
- Total Monthly Rent = Total Annual Rent / 12
- Total Monthly Rent = $52,000 / 12 = $4,333.33
Therefore, "$20 NNN" means a base rent of $20 per square foot per year, plus additional costs for property taxes, insurance, and common area maintenance.
