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Understand the basic terms of office-lease transactions

Garrett Hallenbeck

As you are well aware the real estate economy in northern Nevada has seen better days. All things considered there is a substantial advantage to business owners and office managers in commercial real estate: Drastically reduced market rents! Businesses looking to cut overhead can easily find it by looking at current market rates being advertised. For those lucky enough to be under an expired or expiring lease this should be an exciting time. As you review space in the market it is beneficial to have a general knowledge of some basic real estate terms. Whether you are an office, warehouse or retail user, being able to determine potential pitfalls from additional expenses can be as easy as knowing the difference between a full service and NNN lease:

Full-service lease: A full-service lease is found mostly in the office market. The rate will include all the property expenses in one monthly amount. The landlord will pay the property taxes, property insurance, property maintenance, gas, electric, water, sewer, trash and janitorial for the building. The tenant will always pay for their own telecommunications though, regardless of the lease type.

The advantage is that you will know the exact amount you pay every month for the entire term of your lease agreement.

Modified gross lease: Modified gross rates are marketed lower than full-service and can be found in office, retail and industrial fields. Much like the full-service, a modified gross lease typically has the landlord paying for the property taxes, property insurance and outside building maintenance. The tenant would be responsible for their own janitorial, gas, electric, water, sewer and trash.

You will have fluctuations on your monthly expenses but you typically have control of these. Taking advantage of programmable thermostats and monitoring electrical waste can be very beneficial to your bottom-line.

Net Net Net (NNN): A NNN lease is typically the tenant’s least favorite. These are found in the retail and industrial markets. The office market also dabbled with these leases but most landlords have backed off since the market collapse. The tenant would be responsible for all their utilities along with trash and their pro-rata share of the building’s property taxes, property insurance and maintenance.

Having a basic understanding of those three common lease types can help prepare you and your business project your costs and your needs.

An acronym that is commonly thrown around by property managers, owners and leasing agents is “common area maintenance fees.” CAM fees can be found with any of the above mentioned lease types. These CAM fees are the expenses that the building owner pays to operate and maintain the common area of a building, center or industrial park. Examples include snow removal, outside lighting, grounds clean up, liability insurance and countless other expenses. These are billed back on a prorated share. This means if you lease 1,000 square feet in a 10,000-square-foot building then you are responsible for 10 percent of the expenses. These can be billed monthly, quarterly or annually and are generally reconciled annually.

There are countless variations to these terms and many additional terms in the commercial market, but knowing these three main lease types and CAM fee charges will aid you tremendously. If don’t know the term, ask. One thing I have learned in my seven-plus years of being a commercial leasing agent and property manager is that Northern Nevada has knowledgeable commercial agents waiting to assist you.

Garrett Hallenbeck is a partner in Hallmark Investments and Management LLC in Reno. Contact him at 247-6570 or garrett@hallmarkreno.com.