Confused about NNN and gross leases for small commercial in Broward County? You are not alone. Lease structure changes how money flows, how buyers value your property, and how lenders size a loan. If you want clearer cash flow and stronger marketability, understanding the differences can help you make better decisions. In this guide, you will learn how each lease type works, how it affects NOI, cap rates, and financing, and what to verify in estoppels and CAM reconciliations. Let’s dive in.
Lease types in plain English
NNN (Triple Net): You charge base rent, and tenants pay their share of property taxes, insurance, and common area maintenance. You usually keep roof and structural obligations unless the lease says otherwise.
Modified Gross (MG): A hybrid. The tenant pays base rent plus a negotiated list of expenses, often utilities and some CAM. You may still cover taxes and insurance, or you may cap increases or use a base-year stop.
Full-Service Gross (FSG): One all-in rent payment. You cover most operating costs and manage building services, which is common in smaller office buildings where you control utilities and common services.
Who pays what in Broward
In small retail centers and neighborhood offices across Fort Lauderdale, Pompano Beach, and Deerfield Beach, you will see a mix of these structures. Small retail often leans NNN with CAM recoveries. Smaller multi-tenant office buildings may use MG or FSG.
Typical expense treatment by lease type
- Real estate taxes: NNN tenant pays, MG shared or tenant, FSG landlord.
- Property insurance: NNN tenant pays, MG/FSG landlord (sometimes recovered through rent mechanics).
- CAM: NNN tenant pays a pro rata share, MG split, FSG landlord.
- Utilities: Often tenant under NNN and MG, commonly included for common areas under FSG.
- Capital expenditures: Usually landlord. Some NNN forms allow amortized pass-throughs if the lease permits.
- Management or admin fees: Often included in CAM. Terms vary and can cause disputes if not capped or defined.
Why lease type changes value
NOI and effective rent
Lease type changes how much of your “headline rent” turns into real NOI. With NNN, tenant pass-throughs make NOI closer to base rent. With MG and FSG, you pay more expenses out of rent, so your NOI moves with taxes, insurance, and utilities.
Here is a simple illustration to show why two properties with the same base rent can produce different NOI. Numbers are examples, not local quotes. Always verify your actuals.
- Property: 1,000 square feet at $30 per square foot per year (base rent = $30,000).
- Scenario A, NNN: Tenant pays taxes, insurance, and CAM. Landlord revenue is about $30,000 before other owner costs.
- Scenario B, Modified Gross: Tenant pays utilities and half of CAM. Landlord covers taxes and insurance plus part of CAM. That could reduce landlord net from rent to about $24,300 before other costs.
- Scenario C, Full-Service Gross: Landlord covers taxes, insurance, CAM, and some common utilities. Net from rent could be around $24,000 before other costs.
The takeaway: identical base rents can produce different NOI depending on who pays expenses. If you are comparing properties, convert MG or FSG income to a net-equivalent, or convert NNN to a gross-equivalent. That keeps your analysis apples to apples.
Cap rates and comparability
Buyers pay for stability. Long-term NNN leases to strong tenants often trade at lower cap rates than properties with short-term MG or FSG leases. The reason is simple. Predictable pass-throughs and longer terms reduce the risk that expenses eat into income.
When you review comps, adjust for who pays what. An MG property with a higher face rent but heavy landlord-paid expenses may be worth less than a lower-face-rent NNN property with stable pass-throughs.
Cash-flow predictability and tenant mix
With NNN, you get steadier cash flow if CAM reconciliations and pass-throughs are clear and enforced. With MG and FSG, your cash flow moves with taxes, insurance, and utilities. In Florida, insurance can be volatile. In Broward, this matters to both buyers and lenders because it affects how they underwrite your NOI.
How lenders underwrite in Broward
What lenders prefer
Lenders underwrite stabilized NOI, not your marketing brochure. They like income that is clear and contractually enforceable. Long-term NNN leases with strong credit often get better terms because expected NOI is easier to model.
For MG and FSG, lenders may add expense cushions or use normalized estimates for taxes, insurance, and utilities. In Florida, rising insurance and storm-related costs often trigger tighter assumptions.
Underwriting adjustments you should expect
Lenders and underwriters commonly:
- Scrutinize expense recovery language and real collections. If pass-throughs are ambiguous, they might not count them in NOI.
- Weigh tenant credit and remaining term heavily. Short terms or high rollover reduce proceeds and raise required coverage.
- Consider in-place and market rent together. If in-place is below market, they may blend to a stabilized assumption.
- Apply vacancy and collection loss. MG and FSG properties with higher landlord-paid costs can face tighter loss assumptions.
- Require reserves for capital items, insurance deductibles, and hurricane-related repairs, especially when the landlord carries more expenses.
Why NNN often finances more easily
Clear pass-throughs reduce expense leakage in your operating statements. When lenders can rely on tenants to pay taxes, insurance, and CAM, they can model future NOI with more confidence. Single-tenant net leases with strong credit can fit CMBS or life company programs, subject to Florida risk checks.
Broward-specific cost drivers to watch
- Property insurance: Florida wind and property insurance premiums have been volatile. If your lease does not allow full recoveries or caps hikes in a way that falls on you, your NOI can shrink.
- Hurricane risk: Deductibles and storm repairs are a real underwriting concern. Expect lenders to ask about reserves and lease provisions for casualty and restoration.
- Property taxes: Broward assessments and special assessments can move. Reassessments after a sale may increase expenses. Whether you can pass increases to tenants depends on your lease.
- Local codes and permitting: Tenant build-outs require permits and inspections. Spell out who pays for what and who must comply in the lease to avoid disputes and delays.
- Seasonal patterns: Parts of Broward serve tourism and beach-adjacent demand. Consider seasonality when modeling rent escalations and rollover plans.
Due diligence that protects your NOI
Estoppel certificate checklist
Confirm these items with each tenant:
- Current rent status and any past-due amounts.
- Any abatements, concessions, or free rent and the dates.
- Security deposit and guaranty details.
- Lease start and expiration dates, renewal options, and exercise windows.
- Tenant notice addresses and any landlord cure obligations.
- SNDA status, and whether lender consent is required.
- Any tenant claims or notices of landlord default.
- Tenant responsibilities for taxes, insurance, CAM, utilities, repairs, and capital costs.
- Any exclusives, co-tenancy clauses, or relocation rights.
- Assignment and subletting limits or active subleases.
- Remedies for default and whether any disputes or litigation exist.
CAM reconciliation audit checklist
Collect and review the last 3 to 5 years where available:
- Reconciliation method used: base-year stop, expense stop, or direct pass-through.
- Calculation basis for pro rata share, including rentable versus usable area and how it was measured.
- Line-by-line review for recurring versus one-time items.
- Capital versus maintenance: confirm that capital is not passed through unless the lease allows amortization, and check any amortization schedule.
- Management and administrative fees: confirm market norms and any caps.
- Insurance and property tax pass-throughs: align billed amounts with policy and public records where possible.
- Utilities billed through CAM and submeter accuracy.
- Audit rights and any timing or notice requirements to exercise them.
- One-time adjustments or catch-up charges that increased tenant obligations.
Lease-stack review focus areas
Look across all leases for:
- Consistent definitions of operating expenses, taxes, and CAM.
- Caps on annual CAM increases or CPI-based limits.
- Base-year and expense-stop mechanics and how true-ups work.
- Responsibility for roof, structure, and major HVAC components, and any reserve duties.
- Renewal options and rent step-up formulas.
- Exclusives or non-competes that affect tenant mix and backfill options.
- Permitted uses and zoning compatibility.
- Easements, parking ratios, signage rights, and parking lot maintenance clarity.
- Unusual clauses such as co-tenancy triggers.
Gather the full lease file with amendments and estoppels, prior CAM reconciliations, property tax bills and assessment history, insurance policies and audits, key service contracts, vendor invoices, and capital expenditure records.
Choosing the right structure for your deal
There is no one-size-fits-all lease. Your choice should align with the tenant profile, asset type, and your risk tolerance.
- When NNN makes sense: You want more predictable NOI, cleaner financing, and lower exposure to expense inflation. This works well for multi-tenant neighborhood retail and single-tenant investments.
- When MG can work: You want flexibility to negotiate who pays what and to use base-year stops or caps to balance tenant appeal with expense control. This is common in small multi-tenant offices.
- When FSG fits: You manage services centrally and want a simple, all-in rent number for tenants. Factor in the expense risk on your side and protect with realistic annual increases.
- Model net-equivalent rent: Convert MG and FSG to a net basis, or convert NNN to a gross basis, before you compare comps or select a pricing strategy.
- Build reserves: Even with NNN, plan for roof, structure, and major HVAC obligations, and consider insurance deductibles and storm-related reserves in Broward.
Next steps
If you own or are targeting a small commercial property in Broward County, your lease structure can be the difference between a smooth sale and a pricing gap at the closing table. Tighten your CAM language, confirm pass-throughs in estoppels, and convert rents to a net-equivalent before you market or make an offer. If you want help reviewing a lease stack or prepping for financing, reach out to the boutique team that pairs underwriting with hands-on execution. Contact GRACE CRE to request a lease-stack review and discuss pricing and lending implications.
FAQs
What is the main difference between NNN and gross leases in Broward County?
- NNN shifts taxes, insurance, and CAM to tenants, while gross leases bundle more expenses into one rent payment that the landlord uses to pay operating costs.
How do NNN versus MG/FSG leases affect property valuation in Fort Lauderdale?
- NNN income is usually more stable and closer to base rent, which can support lower cap rates, while MG/FSG NOI varies with expenses and can lead to wider pricing ranges.
What should I ask my lender about CAM recoveries for a Broward retail center?
- Ask how they underwrite pass-throughs, what expense cushions they add for insurance and taxes, and what reserves they require for capital and hurricane-related items.
Which lease type can finance more easily in the Pompano Beach area?
- Long-term NNN leases with clear pass-throughs and strong tenants often finance more easily, subject to Florida-specific risk reviews by lenders.
What are the most common CAM reconciliation issues in small Broward centers?
- Disputes over admin fees without caps, capital versus repair classification, pro rata share errors, and insurance or tax spikes not billed per lease terms.
How do property taxes and insurance in Broward impact MG and FSG leases?
- Since the landlord pays more expenses under MG and FSG, increases in taxes or insurance directly reduce NOI unless your lease includes caps or recovery mechanisms.
What documents should I collect before buying a Deerfield Beach office with MG leases?
- Full lease files with amendments and estoppels, 3 to 5 years of CAM reconciliations, tax bills and assessments, insurance policies, service contracts, vendor invoices, and capital expenditure records.
