I get this question almost every week. It usually comes from a first-time tenant who found a space online, saw a number that looked reasonable, and then opened the lease and felt the floor drop.
Let me walk you through what is actually happening, because once you understand how triple-net leases price out, you stop getting surprised and you start negotiating.
What base rent actually is
Base rent is the price per square foot, per year, that you pay the landlord for the right to occupy the space. It is quoted as an annual number but paid monthly. If you see $32 per square foot on a 2,000 square foot space, your base rent is $64,000 per year, or roughly $5,333 per month.
That number is not your total rent. That is the part most new operators miss.
What NNN actually is
NNN stands for triple-net. The three nets are property taxes, insurance, and common area maintenance, also called CAM. In a triple-net lease, the tenant reimburses the landlord for these costs on top of base rent. NNN is usually quoted as a separate per-square-foot annual figure.
So if you are looking at a space quoted at $32 base plus $14 NNN, your actual occupancy cost is $46 per square foot. On that same 2,000 square foot space, you are now at $92,000 per year, not $64,000.
That is the gap that catches people.
Why NNN varies so much between centers
NNN is not arbitrary. It reflects the actual operating costs of the property, divided across the tenants by square footage. A newer center with high-end landscaping, a managed parking lot, security, and premium signage will have higher CAM. A center in a high-tax jurisdiction will have higher tax pass-throughs. A property with strong insurance exposure, think coastal or older construction, will carry higher insurance line items.
When you see low base and high NNN, the landlord is often signaling that the property has real operating costs but the market will not support a higher headline rent. When you see high base and low NNN, the property usually has a more efficient cost structure or a stronger location commanding premium rent.
Neither is automatically good or bad. What matters is the total occupancy cost and what you get for it.
Where new operators most often mis-model
- They budget for base rent only. They build their pro forma on the headline number and then run out of margin when the NNN bill arrives.
- They forget NNN escalates. CAM, taxes, and insurance all go up over time. Your year-five NNN will not match your year-one NNN. A good lease has caps. A bad lease does not.
- They do not ask for the NNN history. You can and should request the last two to three years of CAM reconciliations. If NNN has been jumping aggressively, that is a red flag worth understanding before you sign.
- They miss the year-end reconciliation. Most NNN is paid as an estimate monthly, then reconciled at year-end. If the landlord underestimated, you owe the difference. New tenants are often blindsided by a five-figure reconciliation bill in February.
- They do not negotiate exclusions. Capital expenditures, roof replacement, parking lot resurfacing, and management fees are often negotiable out of CAM, especially for stronger tenants. Most first-time tenants do not know to ask.
- They underestimate utilities and trash. In a true triple-net, you are usually responsible for your own utilities and waste removal on top of NNN. That is another line item people forget.
The occupancy cost math you should actually run
Before you sign any commercial lease, your number is not base rent. Your number is: base rent + NNN + utilities + trash + insurance you carry + any percentage rent + your build-out amortization.
That total, divided by your projected revenue, gives you your true occupancy cost ratio. For most retail and restaurant concepts, you want that ratio in a healthy range relative to your industry benchmark. If it is not, the location does not work, regardless of how good the foot traffic looks.
The takeaway
A triple-net lease is not a trap. It is a structure, and once you understand it, you can negotiate it intelligently. The tenants who get burned are the ones who treat base rent as the whole story. The tenants who win are the ones who model total occupancy cost, ask for CAM history, negotiate caps and exclusions, and walk in knowing exactly what they are signing.
If you are looking at a lease right now and the numbers feel fuzzy, that is the moment to slow down, not speed up.