This can help a tenant gain traffic and exposure from customers who visit other businesses in the vicinity. Because tenants in a triple net lease are responsible for paying property taxes, they may be able to build these expenses into their business expenses and achieve some tax benefits for their business.
For landlords who are locked into a long-term lease, they lose the ability to increase the rent if property values in the area increase. In the long-term, this can limit earning potential. There is always the risk that a tenant may default, even if there is a long-term lease and tenants have been thoroughly vetted. During the period that they are trying to fill the vacancy, investors can incur losses.
With a triple net lease, the tenant assumes responsibility for the operations and upkeep of the business location. In addition to the sometimes high expenses of running their business, tenants must also be prepared to finance the building operations and any unexpected expenses related to it.
This can be a large financial burden, and tenants must have a strong credit profile in another to qualify for a triple net lease. When the tenant becomes responsible for property taxes, they also become responsible for all the associated liabilities, including fines and penalties for late or incorrect tax remittance. Many large, multinational companies that want brand uniformity opt for triple net leases.
Walgreens is one example of a company that frequently agrees to triple net lease agreements. In , Walgreens was the second-largest U. Walgreens opts for year triple net leases. When a company opts for a triple net lease, they absolve the landlord from any financial or physical responsibility whatsoever. They do their own maintenance, use their own vendors, order their own signage, pay for operating expenses, and capital expenditures.
However, by agreeing to triple net leases, Walgreens can have its pick of prime retail locations. Walgreens stores are typically in excellent locations—1. Walgreens seeks out these corner locations for their premiere visibility. The company is considered an excellent tenant in the realm of triple net leases and a conservative investment for investors. When entering any type of lease, the tenant must consider that their rent payments, whether they include additional expenses or notes, may increase.
A landlord may up the rent because of legal increases permitted by local governments. But the rent may also increase because of property tax reassessments or increases in insurance premiums.
But there are alternatives. If given the option, tenants may want to consider signing a gross lease , which charges a flat rental rate.
This amount covers the fee for the space, as well as any additional expenses that come with it. The landlord , therefore, retains the responsibility for paying property taxes, insurance premiums, and maintenance costs. They cover these costs by building them into the rent they charge their tenant.
While traditional leases are more common than net leases, they present more risk to the landlord, who must absorb any unexpected increases in the extra expenses. This is why some landlords prefer using a type of net lease, shifting some or all of this risk to the tenant. A modified gross lease is another alternative to a net lease.
With a modified gross lease, the tenant pays base rent at the lease's inception. Over time, the lease takes on a proportional share of some of the other costs associated with the property as well, such as property taxes , utilities, insurance, and maintenance. For both tenants and landlords, triple net leases can offer some benefits. A tenant has more freedom with their structure; they can customize their space for more brand uniformity without the capital investment of a purchase.
Another advantage is that these leases tend to be quite flexible: caps to tax increases, insurance increases, etc. For the landlord, triple net leases can be a reliable source of income and have very little overhead costs. The landlord also does not have to play an active role in the management of the property.
A net lease is a type of lease where the tenant pays a portion or all of the taxes, insurance fees, and maintenance costs for a property, in addition to base rent. Net leases are commonly used in commercial real estate. There are three main types of net leases: single net leases, double net leases, and triple net leases.
When a tenant signs a single net lease, they pay one of the three expense categories: taxes , maintenance, and insurance fees. When a tenant signs a double net lease, they agree to pay two of the three expense categories. These leases are also called net-net leases. Finally, when a tenant signs a triple net lease, they are agreeing to pay all three expense categories. Triple net leases are also known as a net-net-net lease.
With a triple net lease, almost all responsibilities fall on the tenant. The tenant is responsible for paying rent, as well as all overhead costs associated with owning the property: taxes, insurance, operating expenses, utilities, etc. As a result, the base rental amount can become a key negotiating term. Because the tenant is taking on the risk of the landlord's overhead, they may be able to negotiate a more favorable base rental amount. There are various ways that the amount of a triple net lease can be calculated.
Sometimes landlords will add up all the property taxes, insurance, maintenance expenses, and common area expenses for a building and divide the total by This number is the monthly cost.
This process is simplified when only one tenant is leasing a building. The monthly base rental amount is typically calculated based on a rate per square footage. The tenant is responsible for most expenses related to a commercial property with a triple net lease. However, the landlord may be responsible for the roof and the structure, and sometimes the parking lot. A net lease is a type of real estate lease—typically for commercial rental properties—in which a tenant pays one or more additional expenses.
There are three basic types of net leases: single, double, and triple net leases. Simply click the link below to find out more. We do receive compensation from some affiliate partners whose offers appear here. Compensation may impact where offers appear on our site but our editorial opinions are in no way affected by compensation.
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Investment Guides. Real Estate Financing Resources. Tax Resources. Real Estate Resources. Comprehensive real estate investing service including CRE. Learn more. Already a member? Sign in here. Access to timely real estate stock ideas and Top Ten recommendations. Learn More. This is what the phrase "NNN" means in commercial real estate. Real estate has long been the go-to investment for those looking to build long-term wealth for generations.
Let us help you navigate this asset class by signing up for our comprehensive real estate investing guide. If you're new to the world of commercial real estate , you may be wondering, "What does NNN mean?
Keep reading to learn what the term "NNN" means in a commercial context, how this type of commercial lease is different from other lease agreements, and what the benefits are to leasing a triple net property. In real estate, "NNN" is an abbreviation for the phrase " triple net lease. With a triple net lease, these operating expenses tend to fall into three separate categories, or "nets.
In this case, although the lessee will only write one check to the landlord, their monthly rent is typically broken down into two distinct components: the base rent and the NNN charge. Base rent refers to the stated monthly rent on a commercial lease. It's also the minimum amount that the tenant will be charged in rent each month.
Meanwhile, NNN costs are an additional charge meant to cover the three types of fees listed above. In a commercial lease, both the base rent and any NNN expenses are calculated using a flat cost per square foot. Although the triple net lease is a common lease structure, it's only one type of commercial real estate lease.
Note, in a triple net lease, free rent typically only applies to base rent, and the tenant is still responsible for operating expenses during this time.
In Austin, most office leases are structured on a triple net basis. However, there are a number of other lease types that you may see in other markets. These include:. To learn more about Triple Net Leases or other types of lease structures, check out these articles:. If you want to learn more about leasing your office space, read our Ultimate Guide to Finding Office Space.
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