Encyclopedia
Net lease
A lease where the tenant pays basic rent plus a share of the building's costs.
For example: A retail tenant reads the lease to see which costs are passed through on top of basic rent. (Illustration only, not a real deal.)
This is a general industry term with no single official definition. Your lease or contract wording controls.
Example only, not a real client. Say you lease a retail unit at a base rent plus your share of taxes, insurance and maintenance. You plan your budget around the total, not the base rent, and set aside a little each month, so the year-end bill does not throw off your cash flow.
What I’d tell a friend
On a net lease, budget for the total occupancy cost, and ask for two years of actual costs before you sign.
Why it matters to you
When taxes, insurance or maintenance go up, your total rent goes up with them. Budget on total occupancy cost and ask for a few years of actual costs before you sign.
How to use it in your deal
Tenants should ask for a full list of what's included in additional rent, last year's actual costs and this year's budget. Add them to basic rent to get your real monthly cost, and compare spaces on that. Negotiate exclusions such as the landlord's financing, structural repairs, and costs caused by other tenants.
Landlords should keep clean records and send year-end reconciliations on time. Buyers should read a sample of leases to confirm that the income on the rent roll is actually recoverable. Owners refinancing should show lenders how much of the operating costs come back from tenants.
Mistakes I see
Comparing a net rent in one building with a gross rent in another. Assuming every cost is recoverable without reading the lease. Ignoring a cap on admin fees or a base year hidden in the clause. Forgetting that property tax can jump after a sale.
In BC and Vancouver
There's no BC statute defining a net lease; the lease controls. Property taxes come from BC Assessment values and municipal rates, which are public.
Official sources: BC Assessment appeal guide · Commercial Tenancy Act (BC Laws) · CanLII (court decisions)
How it works
In a net lease, you pay base rent plus some or most of the building’s costs. The landlord passes those costs through, often as additional rent, with a monthly estimate and a year-end adjustment.
Net leases vary widely. Some pass on only taxes, while others pass on nearly everything including major repairs, so read the definitions closely.
Protecting yourself
Ask for the cost history, the right to review year-end figures and limits on capital costs. Ask whether a management fee is added and how it is calculated.
For a long lease, consider asking for a cap on increases in controllable costs. Whether a landlord agrees depends on the market.
Questions to ask before you sign
- What's included in additional rent?
- What did tenants pay last year?
- What's excluded?
- Is there an admin fee, and on what?
- How are year-end adjustments handled?
Keep reading
Related terms: NNN (triple net), Additional rent, Gross lease
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General information for British Columbia only. It isn’t legal, tax, accounting or financial advice, laws and rates change, and reading it doesn’t make you my client. Any numbers or scenarios are hypothetical. Check the linked official source and talk to a lawyer, accountant or other qualified professional before you act or sign anything. See the terms and disclaimer.