Commercial lease agreements determine responsibility for real estate taxes levied on the property. While the property owner is ultimately liable for these taxes, leases commonly shift this burden to tenants through various methods, such as a “gross lease” where the landlord pays taxes initially but incorporates them into the rent, a “net lease” where the tenant pays taxes directly, or a “modified gross lease” which represents a hybrid approach. A triple net lease (NNN) requires the tenant to pay all operating expenses, including taxes, insurance, and maintenance, in addition to the base rent. Understanding these lease structures is critical for both landlords and tenants in accurately assessing occupancy costs.
Clear delineation of tax responsibility promotes financial predictability for both parties. A well-defined lease agreement helps avoid disputes and facilitates accurate budgeting. Historically, simpler lease structures prevailed. However, as commercial real estate transactions became more complex, nuanced lease agreements evolved to address the diverse needs of landlords and tenants, leading to the variety of lease types observed today. This evolution underscores the importance of carefully reviewing lease terms.
