What Are NNN Leases in Commercial Real Estate?
There are so many factors to look at and assess when you’re looking for properties to lease for your business, but that’s also the same case for those owning them. No matter what side of commercial real estate you’re on, there are some common things that both parties have to get into. For example, there’s the leasing arrangement.
A lease is considered a legally binding agreement that contains the terms and conditions of the property transaction. One type of lease arrangement that people may encounter a lot while looking for a place for their business is a Tripe Net lease, commonly stated as a NNN lease. If you want to learn more about it, here’s an overview of what they entail.
Defining a NNN Lease
Under a triple net lease, here are three main expenses, and that’s taxes, insurance, and common area maintenance. Under a triple net lease, the tenant will be responsible to pay those three main expenses in the form of a reimbursable expense on top of their base rent.
A good way of seeing the triple lease’s reimbursement clause take effect is when something on the property would need repair. Things such as requiring the toilet in the hallway to be fixed or a window changed are categorized under common area maintenance. Any costs made there would be charged to the landlord, but it would eventually go to the tenant.
The tenant, in turn, would be able to reduce their base rent and keep the amount for themselves as reimbursement for the previous transaction. Property taxes and insurance are more steady expenses that are always present monthly compared to common area maintenance.
Seeing Who Benefits
The two parties involved with triple net leases are the landlord and the tenant. At first glance, it does seem like the landlord would be hauling all the benefits from an triple net lease. They wouldn’t have to worry about tax increases or spikes in insurance prices whenever something occurs. They own the properties without having to worry too much about the responsibilities.
However, tenants should also find an NNN lease somewhat attractive as it’s one of few lease agreements that would grant them reduction opportunities in rent. Specifically, a tenant is able to negotiate a lower price point for the base lease since the tenant is absorbing at least some of the taxes, insurance, and maintenance expenses. Aside from that, tenants can also have control over their monthly cost by how they utilize the property such as the utilities that are used, and so on. Put two and two together, and everything is potentially cheaper.
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Gauging the Risk
Don’t just look into the pros, but also try to assess the cons that it may entail. Triple net leases would mean several risks for both the landlord and tenant. The landlord’s cash flow may be too low, or the tenant may not be able to cut costs as intended.
It’s best to make a fully informed decision before you make one too. As a triple net lease is recognized by law, it’s best to get advice from a legal expert who can outline all the relevant details for you. Once you have all the facts, you can choose whether to push on with it or not.
When you’re looking through commercial real estate and come across an triple net lease or the opportunity to put one up, it can truly be an attractive prospect. It’s worth considering, but only once you’ve deduced the total advantages and disadvantages that it gives you.
How Can We Help You?
If you’re interested in either buying, selling, or leasing commercial real estate, you’re in the right place. Saman Saba is a commercial REALTOR® and a real estate attorney whose ultimate goal is to empower real estate sellers, buyers, and lessees to make sound and informed decisions about their most valuable assets. Reach out today to learn more about your options and what you can do regarding your commercial property.
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