By Ken Ashley
(ATLANTA) December 31, 2010
Many are preparing for New Year’s celebrations and some just might end up having a little breakfast after the party. In the Southeastern United States, the iconic
breakfast spot is the Waffle House. Since its founding in 1955, the company’s website reports that they have served 495,264,367 waffles, 957,041,599 cups of coffee and a whopping 1,173,838,328 hash-brown potato orders.
The Waffle House may be best known for those hashbrowns which are certainly a delicious right of passage in the South. You can order them a number of different ways. In the vernacular they should be scattered, smothered, covered, chunked and topped (and further covered with Bert’s Chili). Just what you need for breakfast in the New Year.
And what in the world you might ask does this little vignette have to do with real estate? Those hashbrowns represent the confusing lexicon we use in this industry for what the tenant pays. You would think we would develop a clear way to tell the tenant what the charge is. But like many industries – including breakfast establishments – we have our own lingo.
The Triple-Net lease (“NNN”) originally meant without (or “net”) of three expenses: taxes, insurance, and exterior maintenance. Today there are many variations of what is netted out of the rate the landlord is quoting you, so don’t be afraid to ask what is and what is not included in the rate.
The NNN structure is many times found in single tenant office, research and development, or industrial buildings. Landlords often prefer the NNN lease because the tenant is responsible for all aspects of the real estate except for (in most cases) the building foundation and roof. However, this structure can benefit the tenant, who then can hire and control all vendors and make sure they are monitoring costs closely. The tenant can also decide to keep the air and lights on till 9:00 or even all night, if desired, as the user is in control.
No, this does not describe the hash browns after you added hot sauce. This rate concept is the middle ground between NNN and Full Service/Gross leases. Modified Gross refers to a rate scenario where the rate includes everything but interior utilities and janitorial cost. The rate includes exterior maintenance, roof, structural maintenance and taxes.
Modified Gross is used in many single story buildings, which may be all office or have a warehouse component in the rear of the building. If a developer creates a single story office park with multiple buildings, then this is likely the rent approach you will see. The landlord can hire one landscape contractor, one roofer, etc. to maintain the entire park. The tenant just cleans inside and pays the light bill.
Gross or Full Service
Most Class “A” buildings quote a rate with “everything” included. In the sometimes anachronistic terminology of real estate, this approach is both referred to as “Gross” to mean all included, and Full Service. Everything means: rent, maintenance, taxes, insurance, operating expenses, air-conditioning and janitorial.
Why wouldn’t you want the landlord to quote a Full Service rate on everything all the time? First, in this scenario the building management contracts for all the services and then charges them back to you in the rate. You hope they get the best deal, but its hard to know if, for example, they are buying paper goods at a rock bottom price.
Secondly, if you want MORE of anything, you pay a lot for the privilege. For example, if you need to keep a project team in the office till 7:30 in the summer months for several weeks, then you will need air-conditioning. In a full service scenario, the landlord will charge you $50 or more an hour for running the chiller.
And Now Back To Our Program
So, most importantly, what is scattered, smothered, covered chunked and topped in that hashbrown order your friendly waitress will bring along shortly? Glad you asked: scattered refers to the hash brown potatoes, smothered
with onions, covered with cheese, chunked with ham and topped with Bert’s Chili. A culinary delight of monumental proportions, er, portions.
Enjoy the New Year. May it be prosperous for you and your family.