On paper, full service leases and triple net leases are the complete opposites of each other. With a full service lease, your landlord ostensibly pays your occupancy expenses, while under a triple net lease structure, you pay all of your expenses. However, once you actually become a tenant, they’re more similar than you may expect. Here are a few factors to keep in mind as you look at leases.
- The two structures are completely different in terms of the way they are marketed. Many landlords like to advertise triple net rates assuming that prospective tenants won’t pay attention to the common area maintenance (CAMs) charges that net leases carry. While a $22.00 per square foot triple net rate may look like a good deal compared to a $29.00 full service lease, if the $22.00 space also includes $9.00 per square foot CAMs, the full service lease is actually the less expensive option.
- Tenants pay their expenses in full service leases, too. A full service lease rate is more expensive than a triple net rate because the landlord has already built the cost in. It’s just less transparent.
- Many full service leases are more “net” than you think. Look carefully at your lease’s terms to see if you have a base year expense stop built in. Base year expense stops let your landlord charge you additional rent if the building’s operating expenses exceed the level set in the base year. In other words, your rent can go up just like CAMs do in net leases.
- Triple net leases have a hidden benefit. Your CAMs fluctuate based on the building’s actual operating expenses. While CAMs usually go up, they can go down if your landlord is able to successfully renegotiate the building’s assessed value, installs high efficiency lighting in common areas, or rebids a service contract. Any of these changes will benefit you directly either in an immediate change to your CAM payment or in a credit to your account when your CAM reconciliation occurs. Most full service leases, though, won’t go down if the building’s expenses drop. Under those structures, the landlord benefits, not you.
- Read the fine print. While there are specifications for what should be included in full service leases and net leases, many landlords don’t follow them exactly. The only way to know exactly what is included and what is your responsibility is to carefully review any proposed lease documents. For example, different net leases have different ways of accounting for administration and management fees. On the other hand, many buildings handle utilities and janitorial services differently.
Finding the right lease for your business can be a challenging process. Once you’ve finished finding the right physical space, you need to negotiate acceptable business terms. A professional commercial real estate agent can help you to find the right structure by comparing both full service and net leases to get you in space that will give you the best ROI.
Learn more about how the team at Douglas Commercial can help you negotiate the best lease deal possible. Give us a call at (301) 655-8253.[Image Credit]