Tenant Resources
If you’re getting ready to move into a commercial property, you’re probably doing a lot of research to find out what is right for your business. One of the primary factors to consider when searching for a space is the lease agreement type. The two most common lease types are the gross lease and the triple net lease. At its core, the lease type that’s right for you depends on who you want to be responsible for handling and paying for certain expenses.
In this article, we’re going to dive into the triple net lease, uncover why they’re so common, and discuss the advantages and disadvantages of signing one.
Triple Net Lease Defined
So, what is a triple net lease? A triple net lease puts most of the responsibility on the tenant rather than the landlord. The tenant pays the expenses associated with leasing the space. Triple net lease is often abbreviated as “NNN,” which stands for “Net Net Net.” Each “Net” represents an expense the tenant is responsible for: operating expenses, property taxes, and insurance. Operating expenses are also known as common area maintenance expenses, which include maintenance costs, landscaping, security, and so on.
In comparison, tenants under a gross lease are less responsible for these expenses. Instead, all the expenses are included in the flat rental fee, and the landlord is responsible for all maintenance, insurance, and taxes.
Why Triple Net Leases Are Common
The triple net lease is one of the most common lease types because it poses a lot of benefits to both the tenant and the landlord. First, the landlord is absolved of many responsibilities, removing some of the burdens of property oversight. Since the tenant is in charge of managing those expenses, the base rent is lower. Triple net leases are particularly advantageous in buildings that are newer or well-maintained with low vacancy. These properties will require less maintenance and any expenses will be less of a burden when shared among more tenants.
Disadvantages of a Triple Net Lease
On the flip side, triple net leases come with obligations placed on the tenant. While this type of lease offers a lower base rent, it requires that the tenants risk unknown expenses that may occur in the future. A major storm could sweep through the area and damage the property or there could be a system malfunction, such as the HVAC system not working properly. These potential risks will land on the tenants to take care of and could be expensive. However, with a proper assessment of the property, the money you save by signing a triple net lease could be worth the risk.
Other Types of Net Leases
You may be thinking, “If there’s a triple net lease, then there must be a double and a single net lease, right?” You would be correct! As mentioned before, it all comes down to who is paying for what. In both of these types of leases, the landlord is paying for more of the expenses than the triple net. However, this means that leasing the space will be more expensive.
Double Net Lease
The double net lease, represented by “NN,” is also common in commercial real estate. It puts a little less burden on the tenant. While the tenant handles insurance and taxes on top of rent, the landlord handles the property expenses. The base rent is slightly higher, but taxes and insurance costs may vary depending on the size of the space.
Single Net Lease
The single net lease, represented with a single “N,” is less common in the real estate world. With this lease type, the landlord takes on more obligations than the tenant. They are responsible for insurance and property expenses, while the tenant handles the property taxes. While the single net lease will have a higher base rent than the double or triple, it is still less than the standard lease.
Concluding Thoughts
After taking a dive into the triple net lease and other net lease options, how do you know which is right for you and your business? Like many things, research is key. You’re already taking the right first steps in reading this article. Another thing to remember is that every lease is different. While doing your research and making a decision on where to lease space, keep in mind that there are no absolute rules to leases and contracts are negotiable. Read the fine print and review it with an advisor before signing a lease.
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