This guide will explain the triple net lease type of commercial real estate.
A triple net lease is a typical real estate net lease agreement. The most distinct characteristic of this type of lease agreement is that the tenant pays all the property expenses on top of rent.
Triple net leases (NNN) differ from single and double net lease agreements.
- Triple net lease (NNN) is a type of lease agreement where the tenant pays all property expenses and a small fixed rental fee.
- These expenses include real estate tax, building insurance, maintenance fees, and utilities.
- Triple net leases tend to have a lower fixed rental fee.
- Triple net leases are popular real estate investments for investors due to providing lower risks and steady income.
What Is A Triple Net Lease?
A net lease is an agreement where the tenant pays to use a property. There are different net leases, including single net lease, double net lease, triple net lease, and modified net lease.
The net lease type explicitly tells the tenant what they need to pay. For example, a tenant can pay a portion or all of the property’s taxes, fees, maintenance, and utilities.
Triple net lease real estate is the least common agreement out of all. That’s due to the unfavorable terms of the agreement towards the tenant and the low-risk, high-income returns for the investor’s side.
A triple net lease real estate agreement might incur a lower rent fee, but the tenant has to cover all remaining property taxes, insurance, maintenance and repairs, etc.
Despite the lower rent fee, the remaining costs can overwhelm a business’s lease budget.
Advantages and Disadvantages of Triple Net Lease in Commercial Real Estate
What makes a triple net lease favorable for both tenants and landlords is that properties are easier to manage. After all, the tenant has to cover all operational expenses. However, these expenses can quickly overwhelm the tenant. Therefore, there are good and bad sides to triple net leases.
Advantages of Triple Net Lease
- The tenant determines how to maintain the property.
- The tenant controls the costs for maintenance, upkeep, and property appearance.
- Should the tenant choose to, they can select the insurance carrier.
- The tenant can also protest the taxes and get a more favorable lease.
- The landlord gets a steady and low-risk income stream.
- The landlord isn’t involved in maintenance, utility payments, taxes, and property management costs.
Disadvantages of Triple Net Lease
- The tenant is responsible for managing the property and must ensure it is not falling into disrepair.
- The tenant also takes on the responsibility of paying property tax and risks increasing insurance prices.
- The tenant might overpay for the relatively lower rent fee if the landlord overestimates the total operating costs.
- The chance for unexpected costs to occur.
- The landlord might find it challenging to find tenants willing to sign a triple net lease commercial real estate lease.
- The tenant’s creditworthiness is key for making this type of agreement work. After all, they pay for all operating expenses.
That concludes this short guide on the triple net lease commercial real estate lease agreement. This type of net lease agreement offers tenants and landlords several advantages, but the disadvantages must also be considered.