Finding the right space for your small business marks an exciting step forward in your journey as an entrepreneur. Whether you’re opening your first storefront or expanding your operations, choosing a lease deserves careful thought and consideration.
You might come across something called a “triple net lease” during your search. Whether you choose this option or not, it’s important to know exactly what it is first.
What a triple net lease means for your business
A triple net lease, often referred to as NNN lease, asks tenants to pay more than just monthly rent. This type of commercial property lease shifts most property expenses from the landlord to you.
Unlike a standard lease where you pay rent and the landlord handles everything else, a triple net lease requires you to pay base rent plus three additional costs: property taxes, building insurance and maintenance expenses.
Essentially, you take on the financial responsibilities that landlords typically manage. This arrangement gives landlords predictable income while transferring the unpredictability of property costs to tenants.
The hidden costs of a triple net lease
The “triple” in triple net refers to three major cost categories: taxes, insurance and maintenance costs. However, under these three major costs are often highly fluctuating factors and costs, like:
- Tax share that fluctuates each year based on local tax assessments
- Insurance premiums that may rise with the property’s value or risk level
- Maintenance expenses for shared spaces like parking lots, lobbies and landscaping
- Major building repairs or improvements, like a new roof
- Administrative fees that some landlords might add on top of maintenance costs
Before signing anything, request a detailed cost breakdown. It’s also good to ask for actual or estimates for all three expenses from the past three years. Look for unusual spikes or patterns that might signal problems.
Questions you need to ask before signing
Start by asking what caps or limits exist on annual expense increases. Find out if you’ll pay a proportional share based on your square footage or a fixed amount.
Make sure you know if the lease holds you responsible for just the routine maintenance or even the structural repairs. Additionally, clarify how the landlord calculates your share of building expenses, especially in a multi-tenant property, and how real estate disputes get resolved.
Making the right choice for your situation
A triple net lease can work well for established businesses with steady cash flow and the ability to absorb unexpected costs. It can work in your favor if your base rent savings outweigh the added costs.
However, for newer small businesses operating on tight margins, the unpredictability poses real risks. Consulting a real estate attorney before committing to any commercial lease can help protect your business interests and finances.