NNN charges are a tenant’s share of a property’s taxes, insurance, and common area maintenance (CAM), paid on top of base rent under a triple net lease. Tenants pay a monthly estimate, and the landlord reconciles it against actual costs after each year. In Austin, where most retail and industrial space is leased NNN, these charges are a large part of total occupancy cost, and the lease language determines how much control you have over them.
If you are still sorting out lease structures, start with types of commercial leases. For turning rates into monthly payments, see how commercial rent works.
What is included in NNN charges?
Operating expenses passed through on a triple net lease fall into three groups.
Property taxes
The tenant’s share of real estate taxes on the land and building. Texas has no state personal income tax, and local governments rely heavily on property taxes, so taxes are often a meaningful share of operating expenses for Austin-area properties. Assessments can change year to year, and a sale or major renovation can trigger a higher valuation.
Insurance
The landlord’s property insurance on the building, and often liability and other coverages for the common areas. This is separate from the insurance you carry for your own business, contents, and liability, which the lease will also require.
Common area maintenance (CAM)
CAM covers operating the shared parts of the property. Typical items:
- Landscaping, irrigation, and tree care
- Parking lot sweeping, striping, and repair
- Common area lighting, utilities, and water
- Trash and recycling service for the property
- Security, fire and life safety systems
- Routine repairs to common areas
- Property management and administrative fees, often a percentage of other costs
Leases differ on whether roof repairs, structural repairs, and capital improvements can be passed through. That is one of the most important points to negotiate.
How NNN charges are calculated
Each tenant pays a pro rata share: its square footage divided by the property’s total leasable square footage. For a hypothetical 3,000 SF suite in a hypothetical 30,000 SF center, the share is 10%.
Check how the denominator is defined. If the landlord divides by only the leased (occupied) space instead of the total leasable space, tenants absorb the cost of vacancies. Some leases allow a “gross-up” of variable costs in partially occupied buildings, which can be fair if written correctly. Also ask whether anchors or pad sites contribute to CAM, since a large tenant with its own deal can shift more cost onto smaller tenants.
Estimates vs actuals and the annual reconciliation
At the start of each year, the landlord budgets the property’s expenses and bills each tenant a monthly estimate. After year end, it compares estimates to actual costs in a CAM reconciliation.
Hypothetical example for that 3,000 SF suite:
| $/SF/yr | Annual | Monthly | |
|---|---|---|---|
| Estimated NNN billed | $9.00 | $27,000 | $2,250 |
| Actual NNN for the year | $9.60 | $28,800 | |
| Reconciliation bill due | $1,800 |
These numbers are illustrative only. If actuals come in below the estimate, the tenant receives a credit or refund. The new year’s estimate usually resets upward after a shortfall, so your monthly payment changes too.
Negotiate a deadline for the landlord to deliver the reconciliation (for example, within a set number of months after year end) and a limit on how far back the landlord can bill for missed charges.
Controllable vs uncontrollable expenses
Leases often split operating expenses into two groups:
- Uncontrollable: property taxes, insurance, and utilities, along with costs from new laws. Prices are set by others, so landlords rarely agree to cap them.
- Controllable: everything else the landlord manages, such as landscaping, repairs, security, management, and janitorial for common areas.
CAM caps
A cap limits how much controllable CAM can increase each year. Two forms:
- Non-cumulative: each year’s increase is capped against the prior year. Unused room does not carry forward. Better for tenants.
- Cumulative (compounding): unused increases carry forward, so the landlord can catch up in a later year.
Hypothetical example: controllable CAM is $4.00/SF in year one with a 5% non-cumulative cap. In year two, your share of controllable CAM cannot exceed $4.20/SF, even if actual costs rose more. Caps are negotiable, and some landlords resist them entirely, especially in smaller deals.
Common exclusions to negotiate
A clear exclusion list keeps costs that benefit the landlord off your bill. Common requests:
- Capital improvements and replacements (or only an amortized portion of those that reduce operating costs)
- Roof and structural repairs and replacement
- Costs to fix construction defects or bring the property into code compliance
- Leasing commissions, marketing, and costs to prepare space for other tenants
- Landlord’s financing costs, ground rent, and income taxes
- Legal fees in disputes with other tenants or the landlord’s lenders
- Costs reimbursed by insurance, warranties, or other tenants
- Management fees above a stated percentage
- Reserves for future expenses not yet incurred
- Fines and penalties caused by the landlord
Audit rights
An audit clause lets you, or an accountant you hire, review the landlord’s records behind the reconciliation. Look for:
- A reasonable window to request an audit after receiving the reconciliation
- Access to invoices and records, not just a summary
- A refund of overcharges, with the landlord paying audit costs if the overcharge exceeds a stated percentage
- No ban on hiring an auditor paid on a contingency basis (some leases prohibit it)
What to ask before signing a NNN lease
- What are this year’s estimated NNN charges per SF, and what were actuals for the last two or three years?
- What is included in CAM, and is there a management fee? At what rate?
- Are roof, structure, parking lot replacement, and capital costs passed through?
- How is my pro rata share calculated, and do anchors contribute?
- Is there a cap on controllable CAM, and is it cumulative?
- When is the reconciliation delivered, and how far back can the landlord bill?
- Do I have audit rights, and on what terms?
- Is a recent sale, reassessment, or major project likely to change taxes or CAM soon?
Our lease cost calculator lets you add estimated NNN to base rent to see the full monthly cost. For the related clauses (repairs, maintenance, and caps in the context of the whole lease), see commercial lease terms that matter.
Get help reviewing NNN charges
A tenant rep agent asks these questions before you sign and negotiates the caps, exclusions, and audit rights. Tristen Palori, a licensed commercial real estate agent, represents Austin tenants, and the fee is typically paid by the landlord. See tenant representation or contact us. Property owners can see landlord representation.
FAQ
Frequently asked questions
What are NNN charges?
NNN charges are the tenant's pro rata share of a property's taxes, insurance, and common area maintenance under a triple net lease. They are paid monthly on top of base rent, based on the landlord's annual estimate.
What is included in CAM charges?
CAM usually covers the costs of operating shared areas: landscaping, parking lot repair and sweeping, common lighting and utilities, security, trash, repairs, and property management. The lease defines exactly what can be included.
What is a CAM reconciliation?
After each year, the landlord compares the estimated CAM, taxes, and insurance tenants paid with the actual costs. Tenants then receive a bill for any shortfall or a credit for any overpayment.
Can CAM charges be capped?
Often, yes. Tenants commonly negotiate a cap on annual increases in controllable CAM. Taxes, insurance, and utilities are usually excluded from caps because the landlord does not control them.
Can a tenant audit CAM charges?
If the lease grants audit rights, yes. Most audit clauses set a window after the reconciliation is delivered, require notice, and shift audit costs to the landlord if overcharges exceed a stated threshold.
Why do NNN charges go up?
The most common causes are higher property tax assessments, rising insurance premiums, and increased maintenance or repair costs. Reconciliations can also bring catch-up bills if the prior estimate was too low.