Expert: Stephen A. Cross, CCIM - 3/17/2011

Question
Hi,

If I get into a Triple Net Lease I know as the tenant I am expected to pay all the operating expenses and the CAM fees based on the % of SF I will lease.  I know the operating expenses and CAM fees can adjust on an annual basis (x% each year) or what the lease says, but I wanted to know what happens to my operating expenses if the building sells and increases the tax rate on the property?  Are my Triple Net expenses going to sky rocket?

Also, what are the main operating expenses and what are usually the CAM expenses?
*Water
*Electricity
*Gas
*Trash
*Property Tax

CAM
*Janitorial
*Landscape
*Common area utilities

Thanks!

Answer
Michael:

Property Taxes are generally the largest segment of the operating expenses in a NNN (Triple Net) lease. In my area (Metro Phoenix) this segment amounts to approx. $3.00 to $ $3.50 SF/year, or approx. 50% of the NNN expenses.   

Because the operating expenses can (and probably will) increase over the lease term I suggest negotiating a cap on annual escalations of the NNN expenses (3 to 5% per year is reasonable.) In my experience, this is the only way to ensure that the Landlord has a vested interest in keeping operating expenses as low as possible.  

Please go to my web site (www.crossrealty.com) to access articles on leasing commercial real estate.

Thank you for your question, and best wishes.

Steve
Stephen A. Cross, CCIM
www.crossrealty.com