What is a triple net lease? A triple net lease unlike a traditional lease is sometimes referred to as an NNN lease. It is a commercial real estate lease where the tenant pays the majority of the operating expenses associated with maintaining the property. It is very common with single-tenant properties as well as in retail spaces and can be applied to a multi-tenant property with each tenant paying an equal portion of the expenses. A triple net lease is usually a long term lease, typically 10 years or more. Let’s examine more about this type of lease along with its advantages and disadvantages for tenants and building owners.
Advantages of the Triple Net Lease
Lower rent
Because tenants are responsible for paying for taxes, insurance and building maintenance the rent is usually lower with a triple net lease. Another benefit would be that a serious maintenance issue should be remedied fairly quickly if the tenant is responsible for taking care of the repair.
Minimal Management
With a triple net lease, landlords have minimal responsibility. Since the maintenance, taxes and insurance are the tenant’s responsibility the landlord has very little to work about. This can be a benefit for the landlord/owner as well because they do not have to worry about regular maintenance.
Property control
NNN lease tenants have more control of the property they are leasing. If the tenant needs a new roof or has an electrical issue, they can make the decision when it should be replaced, repaired and choose who will perform the necessary work. This amount of responsibility provided to the tenant can make them seem more like the owner of the property rather than a tenant.
Stable cash flow
SinceNNN leases are generally written for longer terms, such as ten years or more, landlords can expect a stable cash flow for that duration. The landlord does not have to worry about finding a new tenant, deciding on the creditworthiness of other potential tenants or worry about their building being vacant.
Disadvantages of the Triple Net Lease
Paying for property you do not own
As a tenant with a triple net lease, you are paying the costs of owning a property that you don’t own. You are also paying property taxes on a structure that will appreciate in value, but that you don’t own. You will also pay to insure someone else’s property against damage and you’ll also pay to keep it up to code while keeping it safe for your employees and customers.
It may be difficult to find a tenant
Finding a tenant for the owner may be hard to find because of the associated costs. Also, because these leases are long-term it may not be easy to find a tenant willing to agree to a triple net lease.
Risk of experiencing a complete vacancy
Since triple net leases are designed for a 10 to 25 year period, once the property is vacant there is a risk that it may be vacant for longer than anticipated. If the tenant decides not to renew the lease, the landlord risks the property being vacant and without income.
Depending upon what a tenant or landlord is looking for, it may be worth pursuing a triple net lease. Both parties should evaluate their needs and requirements to see if a NNN lease meets their expectations.
