Types of Commercial Leases
Lease structures dictate which expenses are paid by the landlord and which are passed through to the tenant. This directly determines the predictability of the Net Operating Income (NOI).
1. Triple Net (NNN) Lease
In a Triple Net lease, the tenant is responsible for virtually all property operating expenses in addition to base rent. The three 'Nets' are:
- **N1**: Property Taxes
- **N2**: Building Insurance
- **N3**: Common Area Maintenance (CAM) / Repairs
NNN leases are highly favored by passive investors because the landlord has minimal expense fluctuation, yielding a highly stable Cap Rate.
2. Gross Lease (Full Service)
The tenant pays a single flat rent. The landlord is responsible for paying all taxes, insurance, utilities, and maintenance. If maintenance costs spike, the landlord's NOI decreases directly.