What Does "Net Lease" Mean?

The Net Lease -- Versions, Considerations and Alternatives

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A net lease is a type of commercial real estate lease in which the lessee or tenant pays for his space, but he also pays for all or some part of certain “usual costs.” These are typically expenses associated with operating, maintaining and using the property – costs which the landlord would ordinarily pay. 

Some Examples of Usual Costs 

Expenses incorporated into net leases often include taxes, utilities, janitorial services, property insurance, property management fees, sewer, water and trash collection.

These costs are generally broken down into three categories: maintenance, insurance and taxes.

A double net lease requires that the tenant pay all taxes and insurance. A triple net lease requires that he pay all three categories of usual costs.

Be Cautious and Negotiate 

Net leases almost always favor the landlord. They can and should be negotiated to include caps – the maximum amount you're liable for over the basic rent amount each year. Keep in mind that you'll be liable for these extra expenses no matter how well or how poorly your business does during the lease term. This is a major difference from some other common commercial leases that require a percentage of your gross revenues over a specific threshold. At the very least, your rent before a percentage of usual costs are applied – your price per square foot – should be less than it would be were you to enter into a standard lease.

What's the Alternative? 

A "gross lease" is what most people think of when they consider entering into a contract to rent property. You pay a flat amount of rent each month. In exchange, the property owner or landlord pays for all the property's associated expenses. This is common with residential properties, but some commercial leases are occasionally gross leases as well.

Gross leases can be modified and often are. The tenant might pay some reasonable additional costs, such as utilities or liability insurance. If you're concerned about entering into a net lease, explore and try to negotiate a hybrid alternative with the property owner.  

Related Terms:

Also Known As: Closed-End Lease