# Industrial Lease Structures

> **What this is:** A U.S.-focused reference on industrial lease structures, reimbursement mechanics, repair allocation, and transaction-critical lease terms that commonly matter in acquisitions and financing.
> **How to use it:** Load this with the industrial lease abstract, lease roster, underwriting, financing, or IC memo skills. Use it to identify what must be extracted from actual lease language.

Industrial leases are often described in shorthand such as `NNN` or `modified gross`, but shorthand is not enough for underwriting. The real economics come from what is reimbursed, what is excluded, who repairs what, and what rights each party has at rollover or transfer.

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## Common Industrial Lease Structures

### Triple Net (NNN)

Typical features:

- Tenant pays base rent
- Tenant reimburses or directly pays taxes, insurance, and CAM / operating expenses
- Often common in single-tenant and many multi-tenant industrial assets

Important caution:

- `NNN` does not answer who pays for roof, structure, slab, parking lot, dock equipment, or major capital items.

### Modified Gross

Typical features:

- Base rent includes some operating cost burden
- Tenant may reimburse only selected items or increases over a base year / expense stop
- Common in certain flex and multi-tenant situations

Important caution:

- Modified gross can materially reduce recoverability even when face rent looks attractive.

### Hybrid Reimbursement Structures

Common patterns:

- tenant pays taxes and insurance but not all CAM
- tenant pays CAM subject to exclusions or caps
- landlord bears structure and roof but recovers some operating costs
- different tenants in the same asset have different reimbursement structures

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## What to Extract From Every Lease

At minimum, abstract:

- premises and square footage
- term, commencement, and expiration
- base rent and all step-ups
- free rent or abatement
- taxes, insurance, and CAM reimbursement structure
- utilities and separate metering
- landlord work and tenant work
- TI obligations and amortization, if any
- repair and replacement obligations
- assignment and subletting rights
- options:
  - renewal
  - expansion
  - contraction
  - termination
  - purchase
- estoppel requirements
- SNDA requirements
- casualty and condemnation treatment
- default and cure mechanics

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## Reimbursements

### Items Commonly Reimbursed

- real estate taxes
- property insurance
- common area maintenance
- management / administration, where permitted
- utilities for common areas or master-metered service

### Common Questions

- Are reimbursements estimated monthly and reconciled annually?
- Are there exclusions?
- Is there a gross-up clause?
- Are controllable expenses capped?
- Can capital improvements be passed through? If so, on what basis?
- Does free rent suspend only base rent or also reimbursements?

Underwriting note:

- If reimbursement language is unclear, treat recovery as uncertain until lease language confirms otherwise.

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## Repair and Replacement Allocation

Do not assume these from the lease label. Extract them explicitly.

Review who is responsible for:

- roof
- structure
- slab / floor
- foundation
- loading docks and levelers
- drive-in doors
- parking lot and paving
- HVAC
- electrical and power distribution
- sprinklers / fire protection
- exterior walls and windows

Red flag examples:

- Tenant handles "all repairs" but landlord still controls capital replacement
- Landlord handles "structure" but tenant handles membrane or dock equipment
- Parking lot, truck court, or slab language is silent

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## Assignment and Subletting

Industrial users often need flexibility due to corporate reorganizations, outsourcing, partial space givebacks, or business line changes.

Review:

- Is landlord consent required?
- Must consent be reasonable?
- Are affiliates automatically permitted?
- Does landlord have recapture rights?
- Does tenant remain liable after transfer?
- Is there profit-sharing on a sublease or assignment?

Underwriting note:

- Restrictive transfer clauses can reduce lease value and re-leasing flexibility.

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## Options and Embedded Rights

Industrial leases may contain rights that materially change value:

- renewal options
- termination rights
- expansion rights
- contraction rights
- first offer / first refusal
- purchase options

Every option should be abstracted with:

- timing
- pricing or rent standard
- notice period
- conditions precedent

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## Estoppel and SNDA

These are not back-office details.

### Estoppel

Use estoppel requirements to assess:

- response timing
- whether form is attached to the lease
- whether landlord or lender can compel updates during sale or financing

### SNDA

Review:

- whether landlord must obtain it from lender
- whether tenant must sign it
- whether non-disturbance is conditioned on tenant performance

These terms can materially affect transaction execution and financing certainty.

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## Industrial-Specific Underwriting Warnings

- Do not blend leases with different reimbursement structures into one average-rent assumption.
- Do not assume roof and structure are landlord obligations just because the asset is multi-tenant.
- Do not assume abatements stop CAM, tax, and insurance reimbursements unless the lease says so.
- Do not ignore option packages when estimating WALT or release risk.

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## Last Updated

Last updated: 2026-04-22

## Scope Limitations

- U.S. only
- Issue-spotting and abstraction aid, not legal advice
- Lease language and local law control

Validate actual lease documents and transaction counsel guidance before relying on any lease-structure assumption.
