The Triple Net Lease in Commercial Real Estate

The Triple Net Lease in Commercial Real EstateThe Triple Net Lease in Commercial Real EstateA triple net lease is a commercial leasein which the tenant is pretty much responsible for paying everything. They pay all or part of the taxes, insurance, and maintenance associated with the use of the property. These fees are paid in addition to the tenants regular or base monthly rent. This type of arrangement is also known as a net-net-net or NNN lease. Why does the name represent? The tenant is typically responsible for paying the net amount of three major expenses in addition to their base rent insurance, taxes, and maintenance. But this isnt to say that additional rent is limited to these things. The tenant effectively assumes all financial responsibility for operating expenses, both those that stem from their business and those that maintain the building. Disadvantages of Triple Net Leases When you enter into a triple net lease, youre effectively paying the costs of owning a proper ty that you dont in fact own. Youll pay real estate taxes on someone elses real estate. Youll pay to insure their property against fire or other damage, and youll pay to keep it up to code and safe for you, your clients, and customers. Meanwhile, the owner is the only one who benefits from the buildings appreciation or increase in value. This can be an excellent situation for an investor who wants to buy commercial property and rent it out. Its largely hands-off ownership that could result in substantial passive growth if they hold onto it long enough. Advantages of Triple Net Leases Your base rent will fruchtwein likely be less than it would be if you entered into something other than a triple rent lease, but in the end, the bottom line might be pretty much the same. You might enter into another type of lease for a base rent of $4,000 a month. The management company or landlord may agree to drop that to $2,000 a month under the terms of a triple net lease, but if the three add- ons total roughly $2,000 a month, you havent really gained anything. The Bottom Line Triple net leases almost always favor the landlord, and you should carefully negotiate them to limit how much the landlord can increase NNN fees each year. Youll also want to make sure these fees and terms for an ?increase are clearly spelled out in your lease. If you make a mistake, you may be stuck with it for some considerable time, because triple net leases are typically for 10- to 15-year terms. Beware of terms like turnkey in lease negotiations. This often means that the lease is triple net. Have your attorney examine your lease, because the true identity of triple net leases are often disguised by crafty landlords with hidden language. When it comes to triple net leases, look before you leap. The financial consequences are too high.