Triple Net Lease
A triple net lease is a leasing structure where tenants pay for utilities, taxes, and insurance separately from their rent. The most effective way to implement a triple net lease is to submeter tenant spaces. If this is not possible, each tenant can pay for a certain percentage of the utility bill; this is known as a modified gross lease.
Why it Matters
Triple net leases motivate tenants to reduce energy consumption because they will pay for exactly what they consume, and will see the results of conservation efforts reflected in utility bills. An alternative to this structure is to apportion the building utility bill by space occupied, so if a tenant occupies 10% of the space in a building, they will pay 10% of the total utility bill. However, this option is typically less motivating from an efficiency standpoint, because tenants end up paying for neighbors’ consumption and do not realize the full benefits of their energy conservation measures.