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You are here: Experts > Real Estate > Commercial Real Estate > Commercial Real Estate Investment > Triple Nets
Expert: Stephen A. Cross, CCIM - 8/27/2009
Question
Hello,
I am one year into a 3-year commercial lease. I just received my rent invoice, and our triple nets were increased by almost 75%. There have been no obvious improvements to the building other than filling in a few cracks in the parking lot with tar. I have calls in to the property manager requesting an itemization of the "unexpected expenses" they claim but am getting no response. Isn't there some reasonable limit on how much they can increase this? Do we have any kind of recourse?
Answer
Which operating expenses (a/k/a Triple Net, or 'NNN' expenses) can be passed through to tenants, as well as your rights to audit the landlord's invoices, should have been negotiated with the other terms of the lease before you signed. Generally, an increase of this magnitude occurs when a new development becomes fully-assessed and property taxes increase dramatically. On older properties (and as property values are declining) it would be reasonable to expect a reduction in the NNN expenses...not an increase.
Other causes for dramatically increased triple net expenses include: The landlord may be creating a reserve fund for future capital expenses; or the landlord is passing along tenant improvement expenses or paying (itself)a larger management fee. However, none of these expenses are typically considered operating expenses for which tenants are responsible.
I suggest sending certified letters to the landlord and property manager requesting a full accounting of the items on the invoice, including copies of all invoices and checks issued in payment. You should also be able to independently confirm property taxes for the development by logging on to your county assessor's website.
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