The kind of tenant agreement in place on a commercial property for lease is an important consideration for an investor. There are a variety of different lease options available on commercial properties, including gross, net, triple net, and absolute NNN leases, which all may have specifications or variations unique to that lease/lessor agreement.
While there are generally some key differences that help differentiate the particulars between the various lease options, there tends to often be more confusion between triple net leases and absolute. NNN leases.
This post will outline the differences in these two very similar leases and provide you with some advantages and risks you should know to look for as you’re considering investing in a commercial property with a long-term lease in place as part of the deal.
What Is an Absolute NNN Lease?
An absolute NNN lease, also known as a bondable lease, is an agreement between a commercial property owner and a tenant, in which the tenant is responsible for not only monthly rent of the building, but also all the expenses of that property as well. Absolute NNN leases hold the tenant responsible for:
- Monthly Rent
- Insurance Premiums
- Property Taxes
- Building Maintenance and Repairs (Including the structure and roof)
Absolute NNN Lease vs Triple Net Lease
A triple net lease is also often referred to as an NNN lease, because it typically includes 3 main financial responsibilities that are passed on to the tenant of a commercial property: property taxes, insurance premiums and costs associated to the maintenance of the property.
The biggest distinction between a triple net lease and an absolute NNN lease is that triple net leases often don’t include repairs to the structure or roof as tenant responsibilities, but these expenses are passed on to the tenant in an absolute NNN lease.
Why the Confusion Between Triple Net and Absolute NNN Leases?
While this may seem like a simple and easily understood distinction, the commercial property listing and promotion of that property to investor channels is where the confusion can creep in. If a property is advertised as a triple net property, then an investor may go into the purchase thinking that all building expenses are the responsibility of the tenant, only to find out later that the costs surrounding roof repairs or structural work to the building are their responsibility.
This can not only cause a potential purchase to fall through late into the deal, but it can also present a huge (and unanticipated) financial burden for the commercial property owner if they think they have an absolute NNN lease in place, but discover when an issue arises that it’s really a triple net lease excluding roof and structural costs.
How to Navigate Net Lease Commercial Real Estate Successfully (and Surprise-Free)
Net lease real estate can be a lucrative path for investors, and provide a steady, reliable income stream to ensure you get the return on your investment that you’re expecting. Here’s a few tips you can use to help you navigate net leases as you’re deciding on your next commercial property move.
- Do your research, and narrow down what type of property you’re looking for (think about which locations will be most attractive to long-term net lease tenants).
- Pay attention to the particulars of every listing, and always ask for clarification on the details of any existing lease in place with a tenant.
- Read the fine print so you know exactly what type of lease is in place, and what responsibilities belong to you (and which are passed on to your tenants)
- Know your leases and understand which one is going to be most beneficial for your investment plans
- Work with a net lease real estate expert like Sands Investment Group to help you find the best commercial investment options according to all your goals for ongoing income. Working with experts in the net lease industry will ensure that you find the perfect commercial property with a net lease in place that meets your expectations and doesn’t have any financial burdens disguised in incorrect lease terms.
Sands Investment Group is a unique team of distinguished net lease experts who fully understand even the most minute distinctions between various types of commercial leases. Our client-focused approach, extensive connections, and marketing expertise are just a few of the reasons we’re the fastest growing net lease investment company in America.
Get in touch with a net lease expert today by calling 844.4.SIG.NNN or sending us an email at info@SIGnnn.com.