In days of old, commercial office tenants were used to full service leases that included all operating costs, even electricity, in a base year format. This means the landlord pays those costs as a part of the rent and you only pay the increase in a base year (initial lease start year) versus future year costs. In 2008 the DFW office market saw more and more office leases, even suburban markets, going to plus electric (+ E) so that the landlord could more quickly recoup rising electric costs on a real time basis. Since 2014 we have seen many office leases going to triple net (NNN) for the same reason. NNN leases take the burden of cost savings off the landlord since the pass through 100% of the cost on a real time basis. Many NNN leases allow for rolling recapture of operating expense increases. Full service leases do not and the landlord has to wait over a year for the true-up. Triple Net (NNN) is the abbreviation for building operating expenses: taxes; insurance; & common area maintenance. This is market basket of goods and services necessary to run an office building. It does not however include an capital expenses and the like. In a full service lease these costs are in the base rent. In a triple net lease they quote you the rent number + NNN + electric. For example, say a building is quoting $23.50 + electric, which is a full service + E rate and the operating costs at that building was $9.00 / SF. Next door the competing building is quoting their rate at $14.50 NNN. If the operating expenses were the same then these would cost the same. $14.50 + $9.00 + E = $23.50 + E. Many newer and finer buildings use NNN to make their “quoted lease rate” more palatable. Given the inflation level, high interest rates and costs, a new AAA class office tower can easily be $50.00 / SF + NNN! Lucky for you your professional tenant rep at LCRG will level the playing field for you and explain all this in a common sense format.
Tenants need to know how to protect themselves in cases like this. There are ways to negotiate some protection for the Tenant in the face of this rising trend.
Our tenant rep brokers are ready to help you now!
Call us today at 214-526-2626 to help protect you
on your office lease.