Office Space Lease Rates, Explained

If you have spoken with a few potential landlords about lease rates you have probably realized that there is a gamut of ways to present lease rates, which can be hard to follow or keep straight. Below we have attempted to simplify this spectrum (and explain the language) – at one end there is triple net lease rates (commonly written as NNN) and at the other, a gross lease rate. In a NNN lease the tenant pays a lower base rent to the landlord and then all additional expenses separately (see below for what those are).  In a gross lease rate all operating expenses are included in the monthly rental payments.  In the middle of the spectrum is a modified gross, see below for a quick look at what is included in the three major pricing models.

Triple Net Lease Rate (NNN Rate)

Included in Monthly Payment                    Additional Expenses

Modified Gross

Included in Monthly Payment                    Additional Expenses

 

Gross Lease Rates

Included in Monthly Payment                    Additional Expenses

                               

Disclaimer:  Phone and internet get added to the mix occasionally, especially when looking for small executive style office spaces.

There are pros and cons to all pricing models, here are some tips:

  1. Gross Lease Rate- Great for businesses who that need to know exactly what their monthly payments will be for the term of the lease. While this may seem like an obvious advantage for a small business, sometimes a landlord will inflate the rental rate to cover the variable utility charges.  Consequently, you may overpay for some things you don’t need or consume.
  2. Modified Gross Rate- If you are renting with a landlord that adopted this pricing model, be very clear about what is included and what is not when reviewing the lease. After that, a modified gross rate is a great low risk option because tenants don’t have to worry about maintenance charges (such as driveway or roof repair) and property tax hikes. The tenant only pays for the utilities that they use (We may be a little biased here- this is how we structure our lease rates)
  3. Triple Net (NNN) Lease Rate- NNN lease rates can be deceivingly attractive to potential renters because of the low monthly payment that goes along with them. The danger, however, lays in the quarterly assessments that tenants have to pay to cover operating expenses of the building. If you have chose a property that has a NNN lease rate- ask for historic NNN’s (meaning past quarterly assessments) so you can get an idea of what those will be. One approach you could try to remedy increasing (or unknown) NNN’s (pronounced “Nets”) would be to ask the landlord to guarantee the costs for the term (or part of) the term of your lease. Lastly, ask if the property management company returns money to tenants if there was a positive balance at the end of the year, also known as a “pass through”.

Regardless of the pricing model you end up with, know who (landlord or tenant) is responsible to cover the cost of all potential expenses and have a good idea of what those expenses will be.

David Merrell is the COO at North Forest Office Space

North Forest is a leading expert in leasing office space to small businesses.  They leases office space from as small as 130 square feet of executive space up to an entire 15,000-square-foot building, allowing for an office that can grow with the customer’s business.

2 Responses to Office Space Lease Rates, Explained

  1. Finally, an understandable presentation of office space lease rates can be found here! For sure a lot of people will be really grateful to you for taking the time to research and present these factors well.

  2. Pingback: Putting the Pen to Paper! | Small Business Guide to Leasing Office Space