5 Things to Look For in a Triple Net Lease Agreement

Triple net lease real estate is popular among investors who want to add a consistent revenue stream to their portfolio through monthly rent payments from tenants. A key advantage in a triple net lease is that a tenant usually takes on the majority of operating costs on the property, which makes it a low-risk and low-touch investment for a property owner, with stable income each month.

However, each triple net lease agreement is unique to the property itself, so there may be clauses outlining specific terms and financial responsibilities of both the property owner and the tenant. If you’re purchasing a property with a triple net lease agreement already in place, it’s important that you understand all the key elements of the long-term deal that’s been negotiated (and will become yours upon purchase of the property).

Understanding all the intricacies of a triple net lease agreement will ensure that you know exactly what you’re responsible for as the property owner and eliminate surprise costs down the line that could impact the profitability of your NNN property investment.

Here’s a closer look at five of the main things you should look for in a triple net lease agreement.

1. Monthly Rental Sum Agreement

Monthly rent payments from a triple net tenant is where you’ll make your income as a property owner, so it’s important that you know what amount is negotiated in the agreement, and if it will change over time. Many triple net lease agreements have fixed monthly rent payments over the course of the lease period, so you’ll know exactly how much you’ll earn every month (and can factor in how much profit you’ll gain after your mortgage payment on the property).

However, in some cases (although more rare), there are rent increases that are negotiated into the agreement that will take place periodically over the course of the lease term to account for increased property value or expected growth in the area.

2. Tax Responsibilities

A triple net lease agreement will also outline tax responsibilities. Typically, property taxes are passed through to the tenant to pay annually, but since each agreement can vary, it’s important to make sure you understand the tax obligations on the property thoroughly, so you don’t end up responsible for tax payments or fines you weren’t accounting for on your property.

3. Insurance Premiums and Claims

In general, the tenant will be responsible for insurance premiums in a triple net lease agreement. However, there tends to be some stronger variance among deals on this particular element. For instance, some agreements may dictate that the tenant is indeed responsible for obtaining and maintaining all the necessary NNN insurance policies on the property. Others though, may have clauses that break down different types of insurance policies and who’s responsible for each.

You should make sure you understand insurance responsibilities in a triple net lease agreement so that you can determine what expenses, if any, you’ll have for the policies you are required to carry as a property owner.

4. Upkeep, Repairs and Maintenance

Another aspect of a triple net lease agreement that may have some variance depending on what’s been negotiated is ongoing upkeep expenses. While net lease tenants generally cover most of the major operating expenses, each deal will outline the specifics on how certain upkeep costs are divided between the landlord and the tenant. For example, the tenant may be responsible for general upkeep, repairs, and maintenance costs, but the landlord may be responsible for covering all or a portion of expenses that relate to triple net lease structural repairs of the building, such as the roof and frame.

5. Utilities and Janitorial Costs

Tenants will usually cover all the costs for utilities and janitorial services in a triple net agreement, but there are occasional circumstances on a property where these costs are negotiated as shared between the tenant and the landlord. Any monthly expenses you’re committed to paying on a property will come out of your profits, so it’s important to know upfront if a triple net lease agreement includes these costs so you can factor them into your decision.

Sands Investment Group is made up of experienced advisors and brokers who have extensive expertise in how to negotiate and what to look for in an agreement, including accurate triple net lease calculations. Our team can advise you on all the intricacies and benefits of investing in triple net properties, based on our proven track record of successfully closed deals and satisfied investors (in fact, we’re the fastest growing net lease investment company in America, with over 1,900 transactions in 48 states – to the tune of $4.5 Billion – since 2010.)

Want to learn more about NNN properties for sale and speak with an industry expert about current triple net lease investment opportunities? Get in touch with an expert today by calling 844.4.SIG.NNN or sending us an email at info@SIGnnn.com.