The Benefits and Risks of Triple Net Leases

Posted on October 3, 2017

By: Richard R. Spore III

What do office and retail property owners need to know about triple net leases?

A commercial real estate project’s value is typically based on its net operating income, which equals rental income minus operating expenses. The allocation of operating expenses between the landlord and tenants is, therefore, an important factor in the project’s value. Most commercial leases use some variation of two basic operating expense allocation models:

Gross rent model: The landlord pays 100 percent of operating expenses from gross rent paid by the tenants.

Triple net rent model: The tenants pay all operating expenses, including property taxes, insurance and repairs, and maintenance, either directly or by pass-through reimbursement to the landlord.

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