Net-Net-Net Leases, Triple Net Leases, NNN Leases, and other variations of this structure are standard in terms of commercial real estate. Although it is a common commercial real estate lease, it is often misunderstood by both parties. There are benefits and disadvantages to Triple Net Leases, just like every other lease. However, they are excellent options for businesses looking to grow.
What Is a Triple Net Lease?
In a Triple Net Lease arrangement, the lessee (tenant) is solely liable for all the costs associated with the leased asset. In conjunction with the lease, it is accompanied by an associated rent fee. According to this contract, the tenant is responsible for paying the net real estate taxes, net building insurance, and net common areas maintenance.
As a result of the three “net” fees, the lease is also known as a Net-Net-Net Lease.
Triple Net Leases: Benefits
Depending on the situation and the lease, a triple net lease may offer different advantages. A common form of real estate lease typically has a lower rental fee than any other form because the lessee pays three net costs associated with the location.
It is still true that there are some fees and costs that are not included in the Triple Net Lease. Triple Net Leases are not normally required to cover any accounting or legal costs related to the landlord’s CPA (Certified Public Accountant).
Triple Net Leases do not include specific fees and costs, but these are generally relatively small compared to the purchase price of the property.
A triple net lease consists of the following elements:
Triple-net leases have a number of complicated clauses. Make sure you understand what is being offered and signed. If you have a space and agreement that meets your specific needs, it can help you avoid deals that become restrictive quickly.
A triple net lease typically includes the following provisions:
Use of Property
A use clause sets out how the leased space may be utilized. A tenant’s operations must be in line with the terms of the lease. In other words, this could lead to a dispute over early termination or lousy faith between the lessor and lessee.
Term of Lease
A triple net lease’s term clause specifies the length of the lease and can also include its commencement and expiration dates, as well as any renewal options. If you are planning to grow your company shortly, it would be in your best interest to take a realistic look ahead before signing.
Amount for rent
It is possible for a rent clause to include components besides the monthly or quarterly amount due. The inclusion of automatic rent increases in a lease, for instance, could significantly impact a tenant’s financials during the lease’s term.
Operating Costs on a pro-rata basis
The landlord or lessor is charged extraneous expenses in addition to the rent in a triple net lease. A pro-rata portion of the operating costs goes toward property taxes, maintenance of the common areas, and insurance. A landlord usually calculates rent payments based on the square footage of the building and the annual expenses.
How to triple net lease relates to commercial real estate
Most commercial real estate investors and their owners prefer NNN leases wherever possible. There are several benefits to NNN leases from an owner’s perspective, including:
Unexpected costs can be avoided.
The landlord is not responsible for unexpected expenses because the tenant is responsible for operating and maintaining the space. If property taxes rise, for example, the tenant is responsible. The tenant is responsible for replacing an HVAC system if it needs to be replaced. Tenants are responsible for all ancillary costs incurred by the landlord. The benefits of NNN leases make them a low-risk investment for property owners.
Most leases are long-term.
If the tenant is not planning on staying for quite some time, they will not want to sign a NNN lease and incur the associated costs of property maintenance. As a result, NNN leases are commonly found with long-term leases (usually 5 to 10 years). It provides predictability and stability for both landlords and tenants.
The flow of cash is consistent.
NNN-leased properties provide landlords with more consistent cash flows since there are no incidental costs associated with operations and maintenance. A landlord will collect the rental payments each month. It is an amount that the landlord will have the ability to contribute towards the bottom line despite whatever other expenses may be incurred by the tenants during this period.
The owner can have a reasonably hands-off role.
Furthermore, landlords can be relatively hands-off when they use NNN leases. In contrast, tenants would otherwise call to discuss a leaky faucet or an overgrown lawn, so they are not at tenants’ beck and call. During a NNN lease agreement, the tenant is responsible for these issues, so the landlord can be less reactive than they might be compared to other lease arrangements.
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