Commercial Leasing

A triple net lease requires the tenant to pay base rent and utilities, plus real estate taxes, property insurance, and maintenance costs for the leased premises. How those additional expenses are paid can vary. In some cases, the tenant pays and arranges for these expenses directly with minimal involvement from the landlord, as seen with certain ground leases or building leases. In many in-line retail spaces, the tenant might pay monthly estimated tax, insurance, and maintenance costs directly to the landlord while the landlord pays the taxes, holds the casualty insurance, and arranges for building maintenance.   

Gross and modified gross leases are often seen in addition to NNN leases. In a gross lease, the landlord includes tax, insurance, and maintenance in the stated rent. This offers predictability for tenants, but carries higher risk for landlords if expenses increase unexpectedly. A modified gross lease—common in office leases—resembles a gross lease in the first year (the “base year”) but then requires tenants to pay any increases in annual pass-through expenses in subsequent years. Some retail leases also include percentage rent, which is an additional amount based on a percentage of sales above a certain threshold.  

Both landlords and tenants have obligations to third parties under the ADA, but the precise allocation of these responsibilities can vary by lease. To avoid ambiguity, it is best practice to address ADA obligations directly in the lease documents, rather than relying solely on the general maintenance clauses in the lease. For example, a tenant signing a lease for an existing space might not expect to perform structural ADA alterations solely because it agreed to “comply with law” or to “maintain the premises”. 

Tenants can seek renewal rights, sublease or assignment rights, contraction or expansion options, rights of first refusal or first offer (to purchase or lease), or early termination rights or so-called “kick-out clauses”. These provisions give tenants flexibility to adapt to changing business needs throughout the term of the lease.  

A well-drafted lease spells out the process for exercising these rights, and clearly states the terms and conditions to help tenants maintain control over their operations for the life of the lease.