Triple Net Contracts: Understanding the Basics
If you are considering entering into a commercial lease, you may come across the term “triple net lease” or “NNN lease”. It’s important to understand what this type of contract entails, as it has certain implications for both the landlord and the tenant.
What is a Triple Net Lease?
A triple net lease, or NNN lease, is a type of lease agreement commonly used in commercial real estate. In this type of lease, the tenant is responsible for paying not only the monthly rent, but also certain additional expenses associated with the property. These expenses typically include property taxes, building insurance, and maintenance costs.
The “triple net” refers to the three types of expenses that the tenant is responsible for paying. In addition to the rent, the tenant will pay for the net real estate taxes, the net building insurance, and the net common area maintenance expenses.
What are the Advantages for the Landlord?
For landlords, triple net leases can be advantageous, as they shift a significant portion of the property-related expenses onto the tenant. This can help to reduce the landlord’s operating costs and increase their net income. Additionally, since the tenant is responsible for maintaining the property, the landlord may be able to achieve a higher level of property maintenance than they would with other types of leases.
What are the Advantages for the Tenant?
For tenants, triple net leases can be advantageous in that they typically offer lower base rent payments, since the tenant is responsible for additional expenses. Additionally, since the tenant is responsible for maintaining the property, they may have more control over the condition of the property.
What are the Potential Pitfalls?
Triple net leases can have some potential pitfalls that tenants should be aware of. Since the tenant is responsible for paying additional expenses, they may end up paying more overall than they would with other types of leases. Additionally, if the property requires significant repairs or maintenance, the tenant could end up with significant unexpected expenses.
How to Negotiate a Triple Net Lease?
When negotiating a triple net lease, it’s important to understand what is included in the additional expenses. Make sure you have a clear understanding of what your responsibilities will be and how those expenses will be calculated. Consider negotiating a cap on the expenses you will be responsible for, or asking for a detailed breakdown of expenses on a regular basis.
Triple net leases can be complex, but with careful consideration and negotiation, they can be a win-win situation for both the landlord and the tenant. Understanding the basics of triple net leases can help you make an informed decision when entering into a commercial lease agreement.
