WHAT ARE NNN CHARGES?????

Posted June 09, 2011

The extremely stressful process of opening a new business has many aspects. After months of considering details ranging from choosing office furniture to putting the final touches on your business plan, you are at the table with your real estate agent, who is shepherding you through a lease that will allow you to take possession of the perfect location for your business. The lease document may be anywhere from five to thirty pages long, and, even if your agent is being very helpful and knowledgeable, you aren’t sure if you have heard and understood everything they tell you about what you will be expected to pay each month. Many first time business owners don’t realize that they are paying for additional charges until they write the first month’s rent check-long after they have signed the lease.

A landlord owns property for many different reasons, but he has to make a profit of some kind once he has paid for the cost of owning it.  Some of the myriad costs incurred by the owner include the following:

  • Real Estate Taxes
  • Landscape maintenance
  • Upkeep of parking areas
  • Maintenance and repairs of the heating and cooling units (commonly called HVAC)
  • Elevator maintenance and repairs
  • Insurance
  • Maintenance and inspection of the fire alarm and sprinkler systems
  • Trash pick up
  • Cost of electric and water services
  • Janitor Service

It’s a long list.  For many years, it was thought that a calculation of what it might cost for these items could be made to come up with a lease price per square foot so that the tenant would help pay without incurring additional costs, but hard experience has taught that the price of keeping a building running outstrips an average calculation very quickly. Hence the idea that each tenant pays a percentage of these costs according to how much square footage he leases compared to the total square footage of the building.

Just about all of these additional costs are located in areas that are outside of the environs of the Retail space, so they are referred to as Common Area Maintenance (CAM) charges or fees.  All tenants use the parking lots, landscaped grounds, trash pickup containers and enclosures, entrance lobbies, elevators, bathrooms, and hallways; and the electric and water lines, the fire alarm system, heating and cooling pipes and vents that are located outside the walls of their particular space. Usually repairs and maintenance to the roof and exterior walls to include windows and doors are not included in CAM fees.

Most landlords charge for CAM, Taxes and Insurance by calculating the tenant percentage on the yearly cost, and dividing by twelve. Each tenant’s charges are delineated on a spreadsheet attached to the lease document.  A letter greeting the new tenant will often include a reminder in the form of an enclosure that shows the exact amount of the rent check. Typically, the tenant will be charged each calendar year of the lease.  Believe it or not, sometimes the charges are less if the landlord has been able to negotiate lower rates for services.

Hopefully, this explanation helps you to understand that landlord and tenant together have a lot of responsibility to keep a commercial building viable as a place to do business. All parties concerned want to be successful, and it takes a lot of attention and effort to get it done!            

Amoret Bruguiere, Property Manager