Triple net properties are quite attractive to investors who want a steady, predictable income stream (that is also low-risk, low-touch, and long-term). This is because, in general, the vast majority of the financial responsibilities hinged to the building itself are passed along to the tenant in an NNN lease.
However, the division of costs between the tenant and the landlord will ultimately depend upon how the terms of the lease have been negotiated and outlined in the agreement. Since these terms can vary from one triple net lease to another (according to many variables), one of the most common (and most important) questions we are asked by investors is: What does the landlord pay in a triple net lease?
This post will outline the most common financial responsibilities of both the tenant and the landlord in a triple net lease and explain where costs may be divided or shared (depending on the terms of your lease).
What Does the Tenant Pay in an NNN Lease?
Net lease real estate is popular for both landlords and renters alike, but in exchange for using a triple net property as an established place of business, tenants often absorb most of the expenses associated to the building upkeep, including:
- Monthly Rent: Tenants pay an agreed upon amount of rent each month that covers use of the building and property as outlined in the contract.
- Property Taxes: In a triple net lease agreement, annual property taxes are typically passed along to the tenant. The tenant is required to pay taxes at the end of the year as part of their business costs.
- Maintenance Fees: NNN leases typically outline all the specific maintenance responsibilities passed on to the tenant, which can vary and may be shared in some capacity with the landlord.
- Insurance: Triple net lease tenants are responsible for setting up and paying for insurance policies (including deductibles and claims) on the building, through the landlord will typically need to be listed on the policies and may share some of the responsibility as well.
- Utilities and Fees: Tenants are typically responsible for all the utility costs, bills, and fees accumulated in operating the building. Repairs to major utilities, though, may fall under the responsibility of the landlord, depending on the triple net agreement.
What Does the Landlord Pay in a Triple Net Lease?
Triple net real estate can be very advantageous as a property owner and landlord, because you’re able to pass through many of the expenses that usually fall under owner responsibility (such as taxes, maintenance, and repairs) to your tenant.
However, NNN properties do typically come with some expenses that fall under your responsibility as the landlord, including:
- Property Mortgage: If you finance your triple net property, you’ll be responsible for paying the monthly mortgage, along with any financing fees or interest over the term of your loan. However, this payment can be offset easily through monthly tenant rent.
- Insurance: Often times, insurance policies, deductibles, and claims will fall under tenant responsibilities, but there can be some variance here depending on the terms outlined in the lease. At a minimum, the property owner/landlord will need to be listed on any property insurance policies, and some types of insurance may need to be covered by the owner as well. Make sure you read the fine print if you’re entering an existing triple net lease and carefully negotiate terms if you’re setting up an agreement for the first time.
- Maintenance: All the day-to-day operating costs of a triple net property will usually be covered by the tenant as part of the costs of doing business at the location. However, many times, structural repairs or major utility upkeep may be the owner’s responsibility, including:
- Roof (repairs, maintenance, upgrades)
- Exterior Walls
- Utility Repairs and Upkeep (for major things such as plumbing and electricity)
An important thing to keep in mind as you’re exploring NNN properties for sale, is that lease terms can vary a great deal, so you should make sure to examine any opportunities with existing leases carefully and seek out expert negotiation advice on any property you’re considering.
Sands Investment Group is the fastest growing net lease investment company in America, with over 1,700 transactions in 48 states (to the tune of $4 Billion) since 2010. Our company is comprised of distinguished experts in the space who fully understand all the intricacies of net lease real estate and can help you confidently choose your next investment. Our client-focused approach, extensive connections and marketing expertise are just a few of the ways we’re leading the net lease industry.
Want to learn more? Get in touch with an expert today by calling 844.4.SIG.NNN or sending us an email at info@SIGnnn.com.