Commercial leases are negotiated contracts between sophisticated parties — businesses and commercial landlords. Unlike residential leases, commercial leases are NOT governed by RCW 59.18 (the Residential Landlord-Tenant Act). There is no implied warranty of habitability, no mandatory security deposit return timeline, no just cause eviction requirement, and far fewer consumer protections.
The parties have much greater freedom to negotiate terms. For this reason, commercial tenants (and their brokers) must read every provision carefully — there are few statutory backstops.
The tenant pays a flat rent; the landlord pays all operating expenses:
Tenant perspective: Predictable fixed cost; no surprise operating expense bills. Landlord perspective: Bears all expense risk; if taxes or maintenance costs rise, the landlord absorbs it.
The tenant pays base rent PLUS some or all operating expenses. The key variations:
| Type | Tenant Pays | |---|---| | Single Net (N) | Base rent + property taxes | | Double Net (NN) | Base rent + taxes + insurance | | Triple Net (NNN) | Base rent + taxes + insurance + maintenance/CAM charges |
Triple net (NNN) is the most common structure for commercial retail and industrial properties. The tenant pays for nearly everything. Base rent is typically lower to compensate.
Real-world exam trap: "Net" does not always mean the same thing — always identify whether it is N, NN, or NNN. Triple net = all three: taxes + insurance + CAM (common area maintenance).
The tenant pays a base rent plus a percentage of gross sales above a minimum threshold (called the "breakpoint"). Common in retail shopping centers.
Example: Base rent $3,000/month + 5% of gross sales above $100,000/month. If the tenant's monthly sales are $150,000: additional rent = 5% × $50,000 = $2,500. Total rent = $5,500.
The percentage lease aligns the landlord's interest with the tenant's business success — if the tenant does well, the landlord earns more.
Real-world example: A coffee shop owner leases a 1,000 sq. ft. space in a Seattle strip mall on a NNN basis at $4.50/sq. ft./month ($4,500/month base rent). In addition to base rent, she pays a monthly estimate for property taxes, insurance, and CAM ($750/month estimate). At year-end, the landlord reconciles: actual CAM charges were $10,200, estimated $9,000 — the tenant owes a $1,200 true-up. She knew this was a NNN lease and anticipated it.
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Quiz Questions:
Q1. A commercial tenant in Washington has a Triple Net (NNN) lease. In addition to base rent, which expenses does the tenant pay?
A) Property taxes only B) Property taxes and insurance only C) Property taxes, building insurance, and common area maintenance (CAM) charges D) Base rent only; "net" means the landlord nets the rent after expenses
Answer: C — Triple net (NNN) means the tenant pays the three "nets" beyond base rent: (1) property taxes, (2) building insurance, and (3) maintenance/CAM charges. This is the most comprehensive net lease structure, and it is commonly tested because students confuse single, double, and triple net.
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Q2. A retail clothing boutique has a percentage lease with $2,000/month base rent and a 6% percentage clause on gross sales above $50,000/month. In April, the boutique has gross sales of $80,000. What is the total April rent?
A) $2,000 B) $4,800 C) $3,800 D) $6,800
Answer: C — Base rent: $2,000. Sales above breakpoint: $80,000 − $50,000 = $30,000. Percentage rent: $30,000 × 6% = $1,800. Total rent: $2,000 + $1,800 = $3,800.
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Q3. A Washington commercial tenant under a gross lease sees that building operating costs for the year have increased 20% due to rising maintenance expenses. What is the likely impact on the tenant's rent?
A) The tenant's rent increases proportionally with the landlord's costs B) The tenant's rent is unaffected because under a gross lease, the landlord bears all operating expenses C) The tenant owes a year-end reconciliation payment for the increase D) The tenant can terminate the lease because increased costs constitute a material change in lease terms
Answer: B — In a gross lease, the tenant pays a fixed rent and the landlord absorbs all operating expenses. Rising costs are the landlord's problem, not the tenant's. This is one reason gross leases often have higher base rents — the landlord is pricing in the expense risk.
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Q4. A Washington commercial landlord requires the sole owner of a small LLC that is signing a 5-year commercial lease to personally guarantee the lease. The LLC subsequently goes bankrupt after 2 years. The landlord:
A) Has no recourse; the LLC structure insulates the owner from personal liability for the lease B) Can pursue the LLC owner personally for the remaining lease obligation, because the personal guarantee survives the LLC's bankruptcy C) Can only recover 2 months of unpaid rent as liquidated damages D) Must re-lease the space and cannot pursue the guarantor for lost rent
Answer: B — A personal guarantee is exactly what it sounds like — the individual owner personally vouches for the lease obligations. The LLC structure does not protect a personal guarantor. If the business fails, the landlord can pursue the guarantor personally for unpaid rent and other lease obligations, regardless of the LLC's bankruptcy.
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Q5. Which of the following is the MOST significant difference between Washington commercial leases and residential leases?
A) Commercial leases must be in writing; residential leases may be oral for month-to-month terms B) Commercial leases are governed by RCW 59.18; residential leases are governed by common law only C) Commercial tenants do not have the statutory protections of RCW 59.18 and negotiate lease terms as sophisticated parties without most of the consumer protections available to residential tenants D) Commercial leases require a broker; residential leases do not
Answer: C — The key distinction is that RCW 59.18 (the Residential Landlord-Tenant Act) does NOT apply to commercial tenancies. Commercial tenants lack the habitability warranty, mandatory deposit return rules, just cause eviction protections, and other consumer safeguards available to residential tenants. Commercial parties negotiate freely, and what the lease says governs — making careful lease review essential.