By Brian Johnson
2021 President
Santa Barbara Association of Realtors
I have written before about the definition of a NNN lease. It is a lease where, in addition to the Tenant paying a Base Rent, they also reimburse the Landlord for expenses including taxes, insurance and common area operating expenses. Each year the Landlord will prepare a budget for those NNN expenses, typically based on the previous year’s actual expenses plus any forecasted increases.
If your business has a triple net (NNN) lease, you will receive a reconciliation letter from the 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. At the end of the year, the Landlord will compare actual expenses to those that the NNN budget contained. If the actual expenses exceed the budget then the Landlord will send out a bill for those differences to the Tenant. That is the reconciliation process. It is critical that a Tenant review any reconciliation very carefully to make sure that these additional expenses are actually applicable to their tenancy. A Tenant has the right to request a copy of the reporting that was done so they can review and check for accounting errors or mistakes in billing.