In addition to property taxes and property insurance, tenants agree to pay for all maintenance and repair costs. The operating expenses of the property include things like landscaping, snow removal, insurance, maintenance expenses and real estate taxes. On top of the monthly base rent owed, the tenant is responsible for paying the building’s property taxes, insurance, utilities, and the cost of any maintenance or repairs. On top of the monthly base rent owed, the tenant is responsible for paying the building’s property taxes, insurance, utilities, and the cost of any maintenance or repairs. A triple net (NNN) lease is defined as a lease structure where the tenant is responsible for paying all operating expenses associated with a property. A Triple Net Lease is sought after because the lease term on new construction assets are typically 10-20 years, with strong credit backing the lease, and built-in rent escalations. If you simply figure your monthly rent using $10/SF, instead of $10/SF + NNN costs, your monthly rent bill will be larger than you planned for, which eats into the bottom line. This could include common area maintenance like HVAC, electrical and plumbing, structural repairs, site improvements, Real Estate taxes, property insurance, janitorial fees, and utilities. A triple net lease (triple-Net or NNN) is a lease agreement on a property where the tenant or lessee agrees to pay all real estate taxes, building insurance, and maintenance (the three "nets") on the property in addition to any normal fees that are expected under the agreement (rent, utilities, etc. What is a Triple Net Lease? … Click here If you would like a free price estimate on your Triple Net asset or want to subscribe to our “Solid Real Estate” newsletter, where we outline the best deals hitting the market every week in the Triple Net Sector. All Right Reserved. You’ll get a better ROI when all three nets are accounted for—taxes, insurance, and maintenance. The tenant pays their rent plus almost all of the expenses for the building. It is a rental agreement between the lessee and the landlord that comes with an obligation on the lessee. The tenant is only responsible for the utility and services on th… Triple net leases place most (and sometimes all) of the operating expenses on the tenant. Triple Net Lease Form- Why Would You Sign One? A triple net lease, by contrast, is an investment that works for folks with a busy schedule. You need a smart net lease broker in your corner because an offering memorandum may not always tell the full story of a property. When it comes to leases, one of the most confusing concepts is “triple net” (or single net, or double net, or a gross lease – and what’s the difference, anyway?). Market Risk: Because triple-net leases tend to have long terms, the prevailing market rental rates at expiration could be significantly different than the original lease rate. Ultimately, it comes down to who bears the risk of increased expenses. Common area maintenance (CAM) NNN costs are likely to change over the years due to increasing taxes and rising cost of things like maintenance and other building services. In a “Modified Gross” lease, tenants pay a set amount of rent per month and a certain amount of the building’s operating expenses. For example: $10/SF + NNN. Let's say this amount is $20,000 a month. If the roof leaks, the tenant fixes it. Helping businesses find the right space for their unique operation is one of the interesting parts of my job. A “triple net” lease will refer to the three “nets” of commercial real estate leasing- real estate taxes, property insurance, and common area maintenance, or CAM (sometimes … *This is a general overview of leasing terms. If the roof leaks, the tenant fixes it. A Triple Net (NNN) Lease is a commercial lease agreement in which the tenant agrees to pay a base rental amount and the net amount of the landlord’s real estate taxes, the net amount of the building insurance, and the net amount of the common area maintenance expenses. Usually, the price per square foot is listed with (NNN) noted as well. The term triple-net refers to the landlord covering most of the expenses on the property, and that the monthly rent includes all fees related to property taxes, insurance, and common area maintenance (CAMs) on the property. Where is dirt moving around Montana – and why? As we mentioned, NNN stands for net, net, net and is often called a triple net lease. In a triple net lease, the tenant pays taxes, insurance, maintenance and repairs in addition to the rent. All you do is collect your rent check every month and relax. A primary advantage a triple net lease investment offers is a predictable revenue stream. These expenses are commonly referred to as operating expenses. Here’s an overview of the types of … Triple Net Lease is a type of lease agreement between the lessee and the lessor in which the lessee or the tenant of the property agrees for not only the paying the rent and utilities expenses, but also other property-related expenses such as insurance of the building, maintenance of the building, property taxes, etc. That means a tenant is paying the price per square foot and all fixed and variable operating expenses. As a result of this unique mix of expenses, there is rarely a straightforward number on a listing for a triple net property. Triple net leases place most (and sometimes all) of the operating expenses on the tenant. The triple net or NNN lease is considered a “turnkey” investment since the landlord is not responsible for paying any operating expenses. The specific circumstances of each lease should be considered individually by a team of CRE and legal representatives. But, the more leases I facilitate, the more I realize that the commercial real estate world can be perplexing. A Gross lease places most of the financial risk on the landlord if taxes, insurance or operating expenses for a building go up. Triple net lease investments are commonly thought to be almost risk-free. Despite their popularity, many commercial real estate professional misunderstand triple-net leases In this guide, learn about triple-net leases, what they do and don’t … Businesses must weigh the pros and cons of every decision to find what works best for them. How does a triple net lease work? A triple net lease, also known as an NNN Lease, is a lease in which the tenant agrees to pay their pro-rata share of all expenses associated with property maintenance, taxes, and insurance, in addition to a predetermined base rental rate. What’s the data say about the housing market? A triple net lease generally requires the tenant to pay the landlord base rent, along with the tenant’s proportionate share of actual or projected operating expenses associated with the property. The expenses that are usually paid by the landlord are to be paid by the tenant till the end of the lease. Now – getting to triple net or NNN. A triple net leasesometimes referred to as an NNN lease, a net-net-net lease, or an absolute net leaseis a commercial leasing term that refers to a situation in which the tenant pays virtually all the operating expenses associated with maintaining the property he's renting. A very common buyer of Single Tenant Triple Net Properties are 1031 exchange buyers who have recently sold a management intensive investment. Triple net lease – the tenant pays a base rent plus a pro-rata share of the property tax, insurance, and other common operating expenses on the property A simplistic way of explaining this is that under a gross lease a tenant pays a higher base rent, but no additional expenses. Property management budgets for the NNN expense of a property will be using historical and current data. While they do offer several advantages, you should still take into consideration some risks associated with it. A triple net lease is a type of lease where the tenant is responsible for expenses of the property in addition to the gross rent. These items should be thoroughly reviewed in every lease. If NNN is $5, that means you pay $15/SF. In addition, you’ll be the first to know of new sale and lease opportunities. Now – getting to triple net or NNN. Looking for a new rental space for your business but feeling confused by the jargon? When you go to a Starbucks, someone owns the Starbucks. Stay in the know in a weekly email from Sterling. These additional expenses could include maintenance, utilities, or things like janitorial services. These leases transfer all taxes, utilities, maintenance, insurance, and rent obligations to the tenant The three most common types of commercial leases are the full-service lease, triple net lease, and the modified gross lease. First of all, what exactly is a triple net, or NNN, lease? The obligation dictates that post-contract, the tenant is responsible for all kinds of operating expenses and not the landlord. Often you will hear brokers or owners throw around the word Triple Net, when in fact the landlord does have some responsibilities. That amount is fixed based on the leasing agreement. Your decision to enter into a lease without understanding the significance of the type of lease may have a drastic financial impact on your company. The tenant and landlord relationship can be beneficial and supportive, especially when it starts out with a clear mutual understanding of the terms of your agreement. A triple-net lease, often called a “NNN lease,” is commonly used in commercial real estate. That is why you always have to check the lease! Why Single Tenant Triple Net Leases Are Perfect for Generating Passive Income. Triple Net, often abbreviated as “NNN,” is a type of lease structure where the tenant or lessee agrees to pay additional expenses related to the operations of the property, including common area maintenance, property taxes, and building insurance. This list isn’t exhaustive, since each property is unique. At year end, these accounts are reconciled. A triple net lease (NNN) is when the tenant is responsible for ALL incurred on the property. A triple net lease removes the landlord from most if not all of the financial responsibility associated with the property. Every lease is unique. A Modified Gross lease places most of the burden of things like taxes, insurance, and capital repairs on the landlord. As a tenant, it’s important to understand what kind of lease you are entering into – and how that impacts your business. I work with a lot of tenants who are looking for a new location for their business. That means a tenant is paying the price per square foot and all fixed and variable operating expenses. Should a tenant vacate the property, it is possible that prevailing lease rates could be significantly lower than what was charged to the previous tenant, resulting in the prospect of a cash flow negative property. A “Gross” lease is fairly straightforward. If someone drives their car through the front of the building, the tenant fixes it. Net net leases are commonly found in the commercial real estate business where many landlords want fixed incomes. These additional expenses could include maintenance, utilities, or things like janitorial services. Copyright © 2021 by TripleNetProperties. The triple net lease is a popular lease type in commercial real estate, especially among single-tenant properties. Similar to any commercial real estate lease, triple net leases are longer than residential leases. Why would one office or retail space be advertised as a Gross and another be advertised as NNN? A “net” is an expense related to the lease. Triple Net Lease or NNN lease is a lease where it is the tenant instead of the landlord who pays maintenance, insurance as well as property tax besides the usual rent. ). Everyone has their own definition, but in our opinion a true triple net lease means you as a landlord have ZERO responsibilities. Triple net leases, or net-net-net or NNN leases, assign even more risk to the tenant. We provide quarterly reports on the office, industrial, retail, apartment and self-storage markets with detail on deal volume, investment returns, lease rates and other important metrics. Stay informed and get ahead by signing up for our CRE Market Reports below: In a “Modified Gross” lease, tenants pay a set amount of rent per month. That means a tenant is paying the price per square foot. A triple net lease (NNN) is when the tenant is responsible for ALL incurred on the property. Usually, these are listed with a price and the word Gross somewhere in the listing. ). If an HVAC system blows out, the tenant fixes it. Triple Net Lease | The Full Story. Starbucks doesn't own the building, there is an individual who owns it.If you were the owner, Starbucks would pay you a lease payment every month. Triple net leases place most (and sometimes all) of the operating expenses on the tenant. The lessee assumes all operational expenses of a property. A triple net lease is a lease agreement stipulating that a tenant covers the building's operating expenses, including insurance, taxes and maintenance fees. A NNN lease means that more of that risk falls on the tenant. Owners receive stable income and often the underlying real estate will appreciate in value (assuming you have bought a smart investment). Before discussing property with a NNN lease it’s important to understand the general differences between the three main types of commercial leases. If the tenant has overpaid, they will be reimbursed; if the tenant has underpaid, management will ask that they make up the difference. It is crucial for tenants to account for the additional costs of a triple net lease when budgeting for business expenses. The triple net (NNN) commercial lease agreement is a real estate contract for non-residential property between landlords and a business tenant. In a Gross lease, the tenant pays the same amount per square foot each month. That might look like “$10/SF (Gross).”. A triple net lease is one of three types of net leases, a type of real estate lease where a tenant pays one or more additional expenses. The idea of not having to worry about anything after years of owning a large apartment building or multi-tenant shopping center is very enticing. In the listing, this might look like “$10/SF (MG)” or “$10/SF (NN).”. The triple net lease is an excellent example of this with benefits that make them attractive for some tenants and challenges that make them a hindrance to others. A triple net lease (triple-Net or NNN) is a lease agreement on a property where the tenant or lessee agrees to pay all real estate taxes, building insurance, and maintenance (the three "nets") on the property in addition to any normal fees that are expected under the agreement (rent, utilities, etc. a certain amount of the building’s operating expenses. Because the tenant is covering these costs, which would otherwise be the responsibility of the landlord, the base rent charged in a triple net is generally lower than the rent charged in a gross or double net lease. A Triple Net Lease, commonly abbreviated as NNN, is a kind of leasing agreement whereby the tenant is required to pay for the three main expenses of a property on top of the base rent. That would look like “$10/SF (NNN).”. The most crucial thing to track as an owner, potential tenant, property manager, or interested third party, is to understand who is responsible for what operating and capital expenses. Sterling Advisor Nick Chaussee breaks it down*. Through independent research, Sterling CRE produces commercial real estate market intel simply not available anywhere else. The tenant pays the property insurance, the property taxes, and the common area maintenance, which can include a number of things. The pass-throughs and the long-term leases in place make this possible. Since the landlord has already taken on a great deal of risk by owning the building, a NNN lease helps the landlord minimize their exposure to operating expense increases. The most popular type of a net lease, the triple net lease is commonly used for commercial properties.