Net

Hello landlords and tenants I’m going to talk about a “net” and what it means in commercial real estate leasing. My name is Jenna Zebrowski and I’m the attorney behind LawByJZ.com. There are three nets in commercial the real estate: real estate taxes, building insurance and operating expenses. 

They are paid in addition to the rent, so if you’ve got a triple net lease you’re going to pay all three of those costs plus rent. These costs are usually figured based on the size of the leased premises and the size of the gross leasable area, so it’s important to make sure that the measurements are right, and the charges are assessed correctly. Tenant, make sure you’ve got an audit and reconciliation right in there, so you can verify what you’re paying, and if you find an error, make sure you recover that cost!

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Commercial Real Estate Case Study

Net: Insurances, Taxes and Operating Expenses

Lucie’s store was in the perfect location for her budget and her client base.  She knew this is going to be a long-term location for her when she signed the lease.  She wanted it to be perfect, so she confirmed the size with the landlord and invested in getting the exactly right shelves, displays and other equipment for her space.  Lucie signed a triple net lease, so she was paying rent in addition to her share of insurance, taxes and common area operating costs. Those costs were based on the size of the space in relation to the shopping center.

Lucie had her shelves and other furniture and equipment delivered to the space right after construction was completed and she was told she could move in. She went ahead and started to install her fixtures and displays.  But nothing seemed to fit quite as she had planned, based on the measurements the landlord provided.  She called the landlord, who called the architect, who remeasured the space, and they discovered that the measurements the landlord provided were different than the space turned out to be.  

Lucie was unhappy that she was paying for more space than she actually got, so she went back to the attorney that negotiated the lease.  The landlord had provided estimates based on the original size, and was billing Lucie accordingly.  Now, the Landlord was going to have to recalculate the amount of the bill based on the actual size of the remeasured space.

The cost of the triple nets, as well as the lease, was based on the actual measurements of the store, so Lucie got a rent reduction, as well as a reduction in her net payments, because the store was smaller than estimated, which meant that the budget was smaller, too.  She was able to reconfigure her fixtures so that they fit in the store and looked great, and the smaller size was worth it for the rent savings.