“Understanding What Is A Triple Net Lease” written by Mike Marko.
What does a triple net lease mean to property managers?
You may have an idea about what is a triple net lease… But even though this type of commercial lease is popular still many property managers and tenants still don’t thoroughly understand this term.
As the property manager, having a good understanding of terms regarding property management is important. Having the correct knowledge about terms can not only help you run your business more effectively, but can also protect your from trouble down the road.
Today we’re going to discuss talk about the triple net lease and how it is different from other commercial leases.
Things To Know About The Triple Net Lease
When running and managing commercial properties it is important for property managers to know all the different types of leases available for managing their properties. Property managers must be mindful to understand tenant needs and the types of commercial business and documents needed to manage their commercial rentals.
With every commercial rental, the business normally enters into a lease agreement with the property management company representing the building owner. Many leases are simple and short while others a longer and more complicated because of the types of businesses they will manage the rental for.
As a commercial property manager you need to know and have a clear understanding and differentiation of the terms when deciding the type of lease agreement you want to use with each commercial tenant. One of the most commonly used commercial lease is the triple net lease because of the length of lease and how detailed the lease can be customized.
However, many real estate professionals tend to misuse the term triple net lease and do not completely understand the lease and how it is best used to manage the commercial property you are renting the business.
This article will begin to educate you on what exactly a triple net lease is and does while managing your commercial rental property…
What Is A Triple Net Lease
The triple net lease, also known as the NNN lease (net-net-net lease), is the common lease structure used in commercial real estate. In a triple net lease the tenant is responsible for paying all operating expenses associated with a property. These operating expenses may include real estate taxes, building insurance, maintenance, and utilities.
Many real estate professionals call this type of lease the “turnkey” investment. This is because the landlord or the property manager is free from the responsibility of paying any operating expenses for the business occupying the rental. Instead property managers can focus solely on the upkeep and continued use of the commercial building that the business is occupying. The triple net lease also gives property managers a predictable steady income as long as the tenant is under a contract.
The triple net lease is commonly used with freestanding commercial buildings along with the other types of net lease.
To understand the differences in commercial leases let’s look at what a net lease does compared to a gross lease…
Differentiating Net Lease From Gross Lease
When renting commercial property there are two main but different type of leases used to manage the commercial business and the properties they are occupying. The two types of leases commonly used for commercial rentals is gross leases and net leases. When negotiating rental space in a commercial property the business is mainly looking to establish a permanent home and location or could be looking to use the commercial property as a temporary location.
As a commercial property manager it’s your main responsibility to identify the businesses needs and type of lease that would work best for growing their business model.
Tenants and property managers can choose from having a gross lease or net lease when renting a commercial property.
The basic explanation for a gross lease is that the tenant only has to pay the rent for the space they occupy. All other expenses like utilities and maintenance will be shouldered by the landlord or the property manager.
On the other hand, the tenant who choose to have a net lease will still pay their rent but they will be the one to pay for the other expenses.
In a gross lease, the tenant’s rent is normally adjusted to cover the rental space as well as used to pay the expenses of utilities and maintenance for the building or space they are occupying.
In a net lease the rent goes directly to the property manager or owner and is used to cover the space rented. Other operating expenses of the property are covered by the business directly. Since the net lease is easier to manage and has less requirements on property managers it is the preferred type of lease for most landlords and property managers.
The net lease is more beneficial to tenants who need to be involved in every aspect of running the location and business associated with making that business successful. For instance a 24/7 computer company can never afford for services to go down. Therefore controlling services like utilities, cable lines, wifi are essential to their success, and thus a net lease is preferred. A normal retail company who operates normal hours would prefer a gross lease as then they can focus more on customer service and product sales over maintenance and administration of the property.
Both lease are excellent but it is the key responsibility of the property manager to determine the best lease for each company.
However, the net lease has different types of terms and uses to give the tenants other options and flexibility for their budget in renting the property. Let’s look into those differences to determine the best for each commercial client you will be renting the commercial property too…
Single Net Lease
The first type of net lease is the single net lease. It’s also known as the N Lease.
In this type of net lease the responsibility of paying the taxes of the property will be on the tenant. If the property is occupied by many tenants then the taxes are apportioned.
Even if the tenants are responsible to pay the other expenses, most property managers still prefer their tenants to give them the payment and the expenses. Then with the funds the property manager takes care of the obligations.Â The single net lease is the least common type of net lease.
Double Net Lease
The double net lease is also known as net-net lease or NN Lease. It is the type of lease which require the tenants to pay the taxes and the premiums on the building. The payment of the expenses will be added to their rent. This is the most popular type of lease in commercial real estate.
In this case all exterior maintenance costs remain as the responsibility of the landlord or property manager.
Triple Net Lease
The triple net lease, also known as net-net-net lease or NNN lease, makes the tenant responsible for taxes, insurance and maintenance costs associated with the building along with the monthly rent.
This type of lease absolves the landlord or property manager of the most risk of any net lease. In this type of lease, the tenant will be responsible to pay for almost all of the expenses of operating the property. Along with their rent, property taxes, and insurance premiums, tenants will also pay for the costs of structural maintenance and repairs.
The triple net lease cannot be terminated. Both parties will have to wait for their contract’s end date. Also, the amount of the rent can be changed as long as the reason is valid.
Benefits Of Triple Net Lease To Tenants
If you’re thinking that triple net lease is only beneficial to property managers or landlords, then you’re wrong. The tenants can also benefit from the triple net lease.
While the property manager or landlord is free from the majority of responsibilities, the amount of rent for triple net lease is lower compared to other type of leases, especially when compared to the gross lease.
Usually, with the triple net lease the landlord estimates how much property taxes, insurance, and maintenance costs would be typical throughout the lease term, and then the cost savings are passed on to the tenant.
Final Thoughts On Things To Know About The Triple Net Lease
In this article we talked about the triple net lease. The triple net lease is an important term for property managers to thoroughly understand in the world of commercial rental property. This article talked about how the triple net lease is different from other leases. That way you can know better if the triple net lease is the best choice for your goals and situation.
Comment below if you have any questions or further ideas about the triple net lease.
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