March 10, 2021
Triple net (NNN) leases are commercial real estate leases used by landlords who want more passive investments with stable, long-term tenants. Here, we’ll explore what a NNN lease actually means and the rental responsibilities for tenants who enter into one of these agreements.
What Is a Triple Net Lease?
Triple net is the official way of saying that most of the large expenses which are usually covered by the landlord are instead passed through to the tenant. There are single, double, and triple-net leases, all of which refer to different levels of expenses taken on by the tenant versus the landlord.
With a triple net, the tenant is taking on the highest level of maintenance expenses, but likely paying the lowest level of rent to the landlord.
Normally, a tenant in a NNN lease is obligated to pay these expenses:
In traditional CRE leases, property taxes are the responsibility of the landlord. Tenants are not involved in paying any kind of taxes at all. However, in a triple net lease tenants are responsible for covering the cost of all annual property taxes.
Most CRE rentals have specific insurance requirements. In a NNN lease, the tenant usually must pay for general liability insurance and property insurance. You will have to establish the exact insurance requirements in the lease itself to make sure all parties are on the same page.
Depending on the conditions of the lease, tenants likely have the choice of where to get their insurance policy. They will be able to shop around and find the best policy to fit their needs and the landlord’s specifications.
Property Repairs & Maintenance
Tenants are responsible for taking care of regular building upkeep and small repairs. This means everything from landscaping to janitorial services to fixing broken windows. Tenants need to maintain the standards laid out by the landlord in the contract.
Landlords should dictate specific conditions for the property to leave as little room for surprises as possible.
One condition that can be overlooked by tenants is the need for security. As the ones responsible for regular maintenance, tenants must prevent unauthorized activities from happening on the property. Depending on the size and type of property, this could mean anything from posting security patrols to installing a custom security system.
Landlords Still Have Responsibilities
Tenants take on most of the costs involved in triple net leases, but there are still a few things that landlords are responsible for.
Normal landlord expenses in NNN leases include:
- Roof Maintenance/Replacement
- Major Utility Upgrades
- Parking Lots/Outdoor Land Features
- Exterior Walls
Some of these expenses are negotiable. Landlords and tenants may work out a different deal. But, in general, the major expenses here are considered capital expenses that fall outside of the tenant’s responsibility for upkeep and maintenance.
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