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Are you ready for your NNN reconciliation?

If your business has a triple net (NNN) lease, you will receive a reconciliation letter from your landlord usually by the end of the first quarter after the calendar year ends. The purpose of this letter is to reconcile the estimated monthly payments made during the prior year with the actual expenses incurred for common area maintenance (CAM), building insurance, and real estate taxes. Here are some things to look for in your letter.

Proper receipt of payments. The letter should clearly state the amount you paid toward NNN expenses, and you should be able to verify this with your own payment records.
Sufficient explanation of expenses. The letter should itemize the NNN costs in sufficient detail that you can get a sense of whether the costs are consistent with the items allowed per your lease. If the reconciliation letter only includes a lumpsum total or very limited detail (such as only having line items for CAM, insurance, and taxes), you should contact your landlord or property manager to get more information.
Proper allocation of expenses. The basis for allocating NNN expenses across tenants will generally be based on the ratio of the square footage leased compared to the overall square footage of the building. These values should be identified in your lease, so you can compare to make sure the basis of allocation is correct.
Calculation of overpayment/underpayment. Confirm that the calculation of the difference between your estimated payments and the actual prorated expenses is correct. If you have overpaid, you should expect a credit toward your upcoming payments. If you have underpaid, you will owe this additional amount to your landlord.
Adjustment of estimated payment. Your estimated monthly payment for NNN expenses may be adjusted, particularly if the prior estimate was significantly different than the actual costs incurred. Carefully review the adjustment to ensure it makes sense and is consistent with any limits on increases that may be specified in your lease.

Questions about NNN reconciliations are common and your landlord or property manager should be able to assist in helping you understand the reconciliation letter. However, if you are still unsure about how to interpret the information given or need assistance obtaining information, you may also want to consider hiring a firm that performs NNN reconciliation audits to perform the review on your behalf.

The Lease Is Signed… Now What?

Administering a lease can be very stressful to a new tenant. Fortunately, we can share some key items that should be standard practice and that will keep your new commercial lease running smoothly.

Renewal Reminders

Renewal reminders are great for both the tenant and landlord because they remind both parties they’ll need to make a decision on the space soon. These reminders can come in the form of a letter, email, or phone calls. For the tenants, reminders can be a great way to keep track of when to renew the lease or decide to look for another space. For landlords, reminders can be great to get a better idea of what the current tenant in planning on doing before the notice date arrives. It’s a great way for both parties to be knowledgeable of all upcoming dates with no surprises.

NNN Audits

Triple net (NNN) audits are useful for both the tenant and the landlord to keep each other accountable for certain costs. An audit of the NNN lease allows for the tenant to confirm that the maintenance charges the landlord sends to the NNN tenants are accurate. As a landlord, having this clause in your lease can make the tenant feel more comfortable in the space they are renting. The audit clause should cover who performs the audit, who pays for it, and how the findings of the audit will be handled.

Certificates of Insurance

Having proof of insurance is important for both the tenant and the landlord, for obvious reasons. For most commercial leases, the tenant is required to provide certificates of insurance to show the insurance is valid. The landlord needs to confirm the tenants carry the appropriate insurance and that the landlord is provided with certain protections. Ultimately, understanding the benefits and risks in relying upon insurance certificates is important. It is important to know that not all insurance certificates are going to be the same forms, but the forms of certificates created by ACORD have been used as standard practice.

Open Communication

Open communication with your landlord or their designated property manager is extremely important. Your landlord has an interest in seeing your business succeed, since your success adds to the reputation of the property as well as contributing to the financial performance of the property. Having open communication and a solid relationship with your landlord means that if there are bumps in the road during the course of your lease (and there likely will be) then you have a foundation to work with in finding a mutually agreeable solution.

Guiderock Commercial Realty LLC is here to help with any questions you have about administering your lease after signing. Contact our associates at (402) 421-7474 to learn more about our lease administration services.