Triple net leases are popular options for landlords and tenants alike. They aren’t your standard commercial lease agreement. They give property owners a consistent income stream with more time to focus on other projects, as day to day maintenance is typically passed to the tenant. This gives the tenant more control over the property, allowing them to make repairs when needed and sometimes even update the property as they see fit for their business. The costs associated with the property are split up between landlord and tenant in a different way than most other leases.
If you are considering seeking out a new investment for a net lease, leasing your current property as an NNN lease, or renting under an NNN lease, here is what you can expect when it comes to triple net costs associated with the property.
NNN Lease Costs
Who pays it? The Tenant
As with all leases, the rental fee is the biggest – and most well-known – part of the lease. A triple net lease is no different. The terms of the lease are different, usually no less than 10 years and up to 25 years, but the standard lease terms will be there, as well as the additional terms NNN leases come with. Tenants are responsible for many of the costs associated with the triple net property. These additional responsibilities include paying for things like taxes, insurance, and most if not all of the repairs (all explained below).
Who pays it? The Tenant
The tenant is responsible for the property taxes associated with the building. The annual taxes are typically passed from the investor to the tenant, but expenses associated with property taxes can be built into the tenant’s business expenses so they won’t be a surprise for prepared tenants. Who pays, and when it’s paid, is usually laid out in the lease agreement, so everyone knows who is responsible for property taxes and other fees.
Who pays it? Usually the Tenant
In addition to the normal business insurance costs associated with running a business, the tenant in a triple net lease is responsible for building or real estate insurance. There are two common types of insurance for commercial buildings: commercial general liability insurance and property and casualty insurance. General liability insurance helps when there is an injury or accident on the property, while property and casualty insurance covers damage due to fire and smoke, as well as other disasters. Both are important to have to protect the property, owner, and tenant from damages related to unforeseen circumstances.
Oftentimes in a triple net lease, the tenant is responsible for insurance premiums for these insurance policies, but that will depend on the terms agreed upon in the lease. Learn about all the details on what is and isn’t covered in these types of insurance, as well as some considerations for who pays for these common real estate insurance policies.
Maintenance and Repairs
Who pays it? The Tenant, in the majority of cases
In an NNN lease, the tenant is in charge of most of their own maintenance costs and repairs. This is where unexpected costs may pop up for tenants if they are unaware of what is included in their lease terms. Understanding that an NNN lease includes the responsibility of many repair costs can help alleviate confusion and frustration down the road.
A tenant assumes most of the responsibility of the property, and this may include routine costs like plumbing repairs, utilities, or janitorial services. Depending on the type of triple net lease (bondable, double net or absolute NNN lease vs. triple net lease), it may include more serious repairs like roof or structural damage. The lease will lay out who covers both the minor and major repairs, so carefully reading these terms can lead to better knowledge of routine maintenance costs and repair costs and those larger issues that may arise.
Being responsible for maintenance and repairs can give tenants more control over their business: they can get the work done when it works for their schedule and reduces wait-time if working through the landlord. In addition, handy tenants may be able to do repairs on their own or hire contractors of their choice.
Essentially, the tenant is responsible for most of the costs associated with a property in NNN leases, but it can vary based on the lease agreement. Each lease is as unique as the property itself. Some costs may be passed on to the tenant, while others may remain with the property owner. Take care to read through to understand what to expect with rent, property taxes, insurance premiums, and all maintenance and repairs for the property, large and small.
Pros and Cons of NNN Leases
As with any real estate situation, it’s important to consider the pros and cons of triple net leases for both investors and tenants. Everyone has certain needs or requirements from an agreement like this, so let’s look at the benefits for both property owners and tenants in an NNN lease.
For property owners, most find these types of real estate investments involve little risk and provide a steady income. A longer term lease ensures your investment won’t sit empty and you won’t spend time every couple years seeking out a new tenant. You know how much the property is bringing in over the course of the next 10-plus years, and you can pass off some of the expenses, like utilities, taxes or insurance, to your tenant.
For tenants, an NNN lease gives more control over your space. You can make changes and repairs when they need to be done, instead of waiting for the property owner to deal with it. A longer term agreement will give you time to become more established within the community, allowing your customers to know where to find you for years to come. This can also help you plan for the future, as you know you have a place to conduct business for many years.
For some people on either side of the agreement, some of the things included in triple net leases may not fit their needs at the current time, so it’s important to understand these types of leases before seeking one out or entering into an agreement. Certain business types are better suited to these agreements than others, so careful consideration is often needed by investors as they seek out tenants. The division of expenses and responsibilities with NNN leases are unique to each agreement, so be sure to read through and have conversations around the specifics of your lease, as the costs may not be divided exactly the same way each time. Learn about the differences between a single net and triple net lease here.
Find Expert Support For NNN Lease Properties
Now that you know what to expect with NNN lease costs, reach out to investment experts for support on finding the right property to create a triple net opportunity for you. They can cover what to look for in properties, what types of tenants to consider, and how to best split up the expenses between investor and tenant for your unique situation. To learn more about Sands Investment Group’s expertise in triple net properties, get in touch by calling 844.4.SIG.NNN or sending an email to info@SIGnnn.com.