A triple net lease does not include utilities. The three “nets” cover property taxes, building insurance, and common area maintenance, and you pay for electricity, water, gas, sewer, trash, internet, and phone on top of the base rent and those NNN charges. Utilities sit outside the lease’s bundled costs almost every time, so budgeting only for the advertised rent will understate what it costs to occupy the space.
Why Utilities Fall Outside the Three Nets
Each “net” in an NNN lease refers to a category of property expense the tenant reimburses:
- Property taxes. Your proportionate share of the annual real estate tax assessment. The amount can change year to year as assessments move.
- Building insurance. The landlord usually carries the policy covering the structure, and you reimburse the premium.
- Common area maintenance (CAM). Your share of upkeep for shared spaces such as parking lots, lobbies, hallways, and landscaping. CAM can also include utilities for common areas, security, and snow removal.
Your share of each expense is typically calculated by the percentage of leasable square footage your unit occupies. Lease 2,000 square feet in a 20,000-square-foot building and you generally owe 10% of each shared cost.
Utilities consumed inside your own space are treated separately for a practical reason: tenants use them at very different rates. A restaurant and an accounting firm sharing a building consume wildly different amounts of electricity and water, and tying utility bills to actual consumption keeps each tenant from subsidizing a neighbor’s operations.
How You Actually Pay for Utilities
The mechanics depend on how the building is metered.
Individually Metered Spaces
When your unit has its own meters, you set up accounts directly with each utility provider and pay them yourself based on actual usage. It’s the cleanest arrangement: no intermediary, no allocation formula, no guesswork.
Master-Metered Buildings
Some older or multi-tenant properties run on a single master meter. The landlord pays the utility company and then allocates the cost among tenants. Allocation methods vary. Common approaches include splitting by square footage, by the number of tenants, or by submetering equipment that tracks each unit’s real consumption behind the master meter. Several states regulate how landlords can allocate master-metered utility costs, including limits on markups. Your lease should say which method applies. If it doesn’t, ask before you sign.
Submetering has become more common because it delivers the accuracy of individual metering without requiring the utility company to run separate service lines. A third-party submetering company installs meters inside the building and bills each tenant on real usage. If your building uses that setup, check whether the submetering company adds administrative fees on top of the actual utility cost.
Common Area Utilities
Utilities that serve shared spaces, such as lighting in the parking lot, lobby HVAC, or hallway electricity, usually flow through CAM rather than being billed to individual tenants. That means you still pay a share of them, but through the “common area maintenance” line rather than your own utility account.
What Your Lease Should Say About Utilities
The general pattern above holds in most NNN leases, but the document you sign controls. Read the sections labeled “Operating Expenses,” “Additional Rent,” “Utilities,” or “Tenant Responsibilities” closely, and make sure each of these questions has a clear answer:
- Which utilities are your responsibility? The lease should list them specifically. Don’t assume anything is included just because it isn’t mentioned.
- How are shared utility costs allocated? For a master-metered building, the lease should spell out the allocation formula and whether the landlord can charge a markup.
- Which utility costs are folded into CAM rather than billed directly? Common area lighting, shared HVAC, and parking lot utilities often sit inside CAM.
- What happens if utility rates spike? Some leases address rate increases or shortages. Others are silent, leaving you exposed.
If any of it is ambiguous, get it clarified in writing before signing. A short review by a commercial real estate attorney is cheaper than discovering an unexpected obligation six months into a five-year term.
Estimating What You’ll Actually Pay
Because utilities and NNN charges both sit on top of base rent, the listed rate on a commercial property understates your real cost. A listing at $18 per square foot NNN can easily run above $25 per square foot once you add the three nets and utilities, depending on the building.
Your monthly obligation has four components: base rent, your share of property taxes, your share of insurance, and your share of CAM. Utilities come on top of all of them. Before you sign, ask the landlord for the estimated NNN charges per square foot. Those estimates are usually built from the prior year’s actual expenses and give you a reasonable starting point, though the true cost will shift.
Utility costs specifically will depend on your type of business, local utility rates, and how efficiently the building runs. A retail shop in a well-insulated newer building will spend far less on electricity than a restaurant in an older structure with weak HVAC. Ask the landlord or the prior tenant for historical utility bills. Most utility companies will also release usage history for a commercial address on request.
What Happens If You Don’t Pay
NNN charges are almost always classified as “additional rent” in a commercial lease. That classification matters: falling behind on your share of taxes, insurance, or CAM triggers the same default remedies as skipping base rent. The landlord may charge late fees, accelerate the remaining rent due under the lease, or pursue eviction.
Utility nonpayment is a different problem, and it moves quickly. If you pay the utility company directly, the provider can disconnect service after following its notice and cure procedures. Losing electricity or water can force you to close, and reconnection fees pile onto the missed bill. If utilities are master-metered and the landlord pays the provider, your failure to reimburse the landlord is again treated as unpaid additional rent.
Most commercial leases include a grace period, but the cure windows are often shorter than tenants expect. Check your lease for the specific cure period and late fee terms before you find yourself relying on them.
Tax Treatment of Utilities and NNN Charges
If you use the leased property for your business, the rent you pay is generally deductible, and the same principle covers your NNN charges and utility payments. The IRS treats rent as any amount paid for the use of property you don’t own and allows a deduction when the property is used in your trade or business.1Internal Revenue Service. Small Business Rent Expenses May Be Tax Deductible Because NNN charges and utilities are costs of occupying and operating your space, they fall under the same logic.
If you prepay rent, the timing of your deduction depends on your accounting method. Cash-basis taxpayers can generally deduct advance rent payments in the year paid, as long as the prepayment covers no more than 12 months and doesn’t extend past the end of the following tax year. Accrual-basis taxpayers deduct rent only for the period to which it applies, regardless of when payment is made.2Internal Revenue Service. Publication 535 – Business Expenses Keep your lease, utility bills, and any NNN reconciliation statements to support the deduction.