The most common structure in commercial real estate is the net lease. In a net lease, the tenant pays a lower base rent plus some or all of the property’s operating expenses. There are several variations:

A single net lease requires the tenant to pay for property taxes.

A double net lease includes property taxes and insurance.

• A triple net lease (NNN) is the most common, especially for single-tenant retail buildings. Here, the tenant pays for property taxes, building insurance, and all common area maintenance (CAM) costs. This structure shifts the majority of the operational risk from the landlord to the tenant.

Finally, the percentage lease is a structure unique to retail environments, such as shopping malls. In this model, the tenant pays a lower base rent plus a percentage of their gross sales above a certain threshold. For example, a cafe might pay a base rent plus 5% of all sales over a pre-defined monthly amount. This creates a partnership of sorts, as the landlord is directly incentivized to create a thriving retail environment that drives traffic to its tenants’ stores. A business owner must carefully analyze these different structures to understand the true total cost of a lease beyond just the advertised base rent.