Searching for the perfect office or retail space in New York to house your business? The location and amenities are important, but so is the type of commercial net lease that comes with it. A net lease is a type of rental agreement where you pay rent plus a portion or all of the property’s expenses, such as taxes or maintenance.
Net leases are common with commercial properties, so there is a strong possibility that you may be signing one. However, there are different types, each with its own advantages and disadvantages.
Single net lease (N)
In a single net lease, you are only responsible for paying the rent and the property taxes. It is a good option if you – and your landlord – prefer simpler leases that are easy to manage. This simplicity can also mean lower initial costs since the rent is often reduced to balance out the taxes.
However, fluctuations in property taxes can lead to unpredictable expenses. If local tax rates increase or if the assessed value of the property rises, you may face higher costs than you initially anticipated.
Double net lease (NN)
Double net leases require you to cover property taxes and insurance in addition to the rent. It is the middle ground between a single net lease and a triple net lease in terms of responsibility.
If the property you’re considering has this type of lease, consider negotiating lease terms that provide some level of protection. This can include caps on insurance premiums or tax escalation clauses.
Triple net lease (NNN)
With a triple net lease, you handle property taxes, insurance and maintenance. If you value financial consistency, this net lease can provide predictable expenses and potential tax benefits. It is also a long-term agreement, typically spanning 10 to 15 years or more. This can be beneficial if you prioritize stability and want a fixed location for your business.
However, it also comes with the most responsibility and potentially high costs, especially if maintenance issues arise. Make sure you conduct thorough due diligence on the property’s condition. You can also negotiate terms that can limit your exposure to rising expenses, such as maintenance caps or predefined escalation clauses.
The type of net lease you sign can have a big impact on your bottom line. To ensure that you fully understand the financial and legal implications of your lease agreement, consult with an attorney.