The Real Estate Industry has unique terms and acronyms. Here are a few definitions to assist.
NNN (Triple Net). This term refers to the items that are factored into the cost to Lease real estate. NET of Taxes. NET of Utilities. NET of Common Area Maintenance charges (CAM). These are costs that are in addition to the base rental rate. NNN Leases are typical with retail, warehouse and industrial spaces.
Real estate is taxed by the municipality in which it resides. This cost is passed on to the Tenant. A Landlord can estimate this cost and bill it monthly, quarterly, semi-annually or annually.
Utilities vary based upon the use of the space. The cost of water, sewer, electricity, gas, internet, telephone, etc. are paid by the Tenant. This can be paid directly to the utility provider or the Landlord, depending on whether the utility is separately metered.
Common Area Maintenance (CAM) charges encompass the cost to run a property. CAM typically includes: insurance, cleaning, plowing, grounds maintenance, elevators, security (if any), fire alarm, common area utilities, etc.
Modified Gross. With Modified Gross Leases, typically there is a base rental rate, utility charges and an inflation factor for the taxes and operating costs. This is accomplished through a Base Year specified for the Taxes and Operating (CAM) costs.
For example if a Tenant signs a Lease in Calendar Year 2024 (1/1/24 – 12/31/24), the Lease will likely specify that 2024 is the Base year for Operating Costs. Should the operating costs in 2025 increase over the 2024 total operating costs, the Tenant will pay its pro-rata share (percentage of the space occupied by tenant from the total building size) of the increase over the base year. See sample below:
Base Operating 2024 = $100,000
Operating Costs 2025 = $110,000
Increase from 22024 – 2025 = $ 10,000
Tenant’s Pro-Rata Share = 5% = $ 500.00
Real Estate Taxes are based upon a Fiscal Year (7/1 – 6/30). Often Leases are signed with the base year being the current fiscal year. For Example, if a Lease is signed in February 2025, the base tax year would likely be Fiscal 2025 (7/1/2024 – 6/30/2025). The increase over the base year would be calculated in the same manner as the Base Operating Year example above.
Gross. The Lease specifies the total monthly rental rate. With the exception of utilities there typically are no additional costs above the monthly rent. A Fully Gross rental rate (including utilities) is often used for a sublease or a smaller unit. Be sure to clarify if utilities are in addition to the rental rate.
Common Area Factor. In the Greater Boston real estate office market, Landlords typically include a Common Area Factor in the Leasable Square Footage
Lease Commencement Date. This is the date that your Lease starts & typically the base rent and utility obligation begins.
Lease Term. The length of the Lease contract (typically in years).
As with all legal documents, it is strongly recommended that you consult an attorney before signing.
