The following retail leasing information is designed to help tenants initiate and complete retail lease transactions. The information provided is based on our experience and although we have no reason to doubt its accuracy, leasing terms and deal protocol vary from market to market. Therefore all information should be verified by the user prior to lease, purchase, exchange, or execution of legal document.
Triple Net Lease:
Definition: A lease in which 100% of taxes, insurance and maintenance associated with the property are paid by the tenant.
Common use: Triple net leases represent the standard in retail leasing transactions, and tenants should expect them.
Triple Nets (NNN):
Definition: The cost of taxes, insurance and maintenance associated with a property.
Common use: When getting a rent quote for a triple net lease, it is important to also get a triple net quote because this will determine your overall gross rent. Triple nets are quoted separately from the rent cost because they are considered 'pass through' costs. They are also often quoted combined as one number in annual or monthly cost per square foot. Adding the NNNs to the Rent will give the Gross Rent.
- $.25 Insurance (psf monthly)
- $.15 Common Area Maintenance (psf monthly)
- $.15 Taxes (psf monthly)
- $.55 = Monthly NNN psf
Definition: Rent + NNN = Gross Rent
Common use: Gross rent is the total amount that tenants pay the landlord for retail space. As mentioned, rent and NNN are often quoted as annual or monthly figures. See below for an example of how to calculate the gross annual and monthly rent for a 1,500 sq ft space.
|Gross Rent||3.05 psf|
Space Size 1,500 Sq Ft x Gross Rent $3.05 = $ 4,575 Gross Monthly Rent
|Gross Rent||36.60 psf|
Space Size 1,500 x Annual Rent $3.05 = $54,900 Gross Annual Rent
Pass Through Cost:
Definition: Costs associated with owning property that are passed on to the tenant.
Common use: Landlords separate pass through costs from rent as a way to show the cost they pay on the tenant's behalf and upon which they have little or no control of. These costs generally come in the form of triple nets and are made up by taxes insurance and common area maintenance.
Definition: The portion of rental cost that goes to the landlord in return for use of the space.
Common use: Net rent is what is generally quoted as "rent" for a retail space. It is also commonly a negotiable cost.
Letter of Intent (LOI):
Definition: A nonbinding letter that serves to delineate the intentions between the landlord and the tenant. It includes basic issues including rent, triple nets, condition of space upon delivery and other major deal points that will be found in the lease.
Common use: Because leases have grown in length, letters of intent are used to negotiate the basic terms of a lease, prior to lease negotiation. Since the letter includes the most crucial parts of the lease, if both parties agree on the terms of the letter then both parties can be more confident that a deal will be made, when entering the more detailed and time consuming efforts of the negotiations of a lease. Letters of intent are also a formal way to show a tenant's interest in that space and are a sign of professionalism and knowledge of the retail leasing process. There is no standard form of LOI but you can find an example of one that offers commonly included items, by clicking here.
Definition: Heating Venting and Air Conditioning
Common use: HVAC units are generally maintained by the landlord.
Definition: The private or public service facilities such as Gas, Telephone, Electricity, water and sewer.
Common use: It is most common for the tenant to pay their own utilities as either a pro rate share of a property or the total amount of utilities that have been separately metered to their space. Utility payment is generally specified in the lease and differs from property to property.
Definition: A list of the building standard items that the landlord will contribute with, as a part of the tenant improvements.
Common use: A work letter can usually be found as part of a letter of intent and explains in detail what the condition of the space will be when it is turned over.
Definition: Rights given to a particular tenant to exclusively sell a particular category of merchandise within a retail property.
Common use: Tenants use exclusive rights to ensure that landlords don't rent space to competing retailers at the same property.
Definition: Money or financial incentives given to tenants for the cost of improvements made to the store space.
Common use: Tenants often ask for the landlord to contribute with a portion of the cost they intend to spend on improvements to the space. This requirement generally comes as part of the letter of intent.
Definition: A Written statement of the financial position of a person or company, showing total assets and liabilities as of a certain date.
Common use: Landlords often ask for a financial statement from tenants in order to determine the legitimacy of the business that will occupy their property. Click here for an example of a financial statement.