What is a Single Net Lease?
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Single Net Leases Explained
In a single net lease agreement, sometimes called a Net or N lease, the tenant assumes responsibility for paying the cost of the building’s property taxes in addition to the regular rent. The landlord may or may not include utilities with the rent, as negotiated between the two parties.
To compensate for the extra expense, landlords will typically offer a lower monthly rent. However, the amount of rent will escalate annually to account for inflation as well as to pay the expected increase of real estate taxes and assessments. On balance it tends to even out, with tenants paying roughly the same amount in a given year. A single net lease gives the tenant more transparency regarding the amount of real property tax that it is paying. It is more convenient for the landlord because the landlord does not need to be involved in the process of paying real property taxes.
Single net leases remain less common than other commercial lease types. If the tenant fails to pay property taxes, the local government puts a lien against the property, which is ultimately the landlord’s problem rather than the tenant’s. To solve this problem, landlords using single net leases will often collect the property tax costs from the tenant using a monthly escrow, then pay the tax bill themselves to ensure on-time, in-full tax payment.
Reviewed by Mark H. Zietlow, Innovative Law Group