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Triple Net Lease Agreement

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A triple net lease (triple-net or NNN) is a lease arrangement in which the tenant or lessee pledges to cover all property expenditures, such as real estate taxes, building insurance, and upkeep. These costs are in addition to the rent and utilities.

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What Is Meant by Triple Net Lease (NNN)?

In contrast, in most business lease arrangements, the landlord is responsible for some or all of these payments. 

NNNs is only one sort of commercial real estate net lease. A single net lease often includes property taxes in addition to rent, whereas a double net lease typically includes property insurance.

What are the Drawbacks and Benefits of Triple Net Lease?

The NNN lease provides various benefits to both the landlord and the tenant, as mentioned below:

  • NNN leases are for a period of 10 to 15 years. As a result, landlords get a steady passive income.
  • A NNN lease decreases the landlord’s burden by eliminating property overheads, maintenance fees, insurance, and any tax load.
  • Tenants profit from a NNN lease because they can obtain property at a cheaper base rate than they would with a gross lease.

The following are the drawbacks of NNN leases:

  • Tenants inhabit the property for years; landlords are prohibited from utilizing the property for other uses.
  • Many NNN leasing agreements have set rent payments, which removes the possibility of progressive returns.

How does a Triple Net Lease agreement work?

A triple net lease requires the lessee (tenant) to pay three required expenditures related to the leased real estate: maintenance, insurance, and taxes. A standard lease arrangement, on the other hand, compels landlords to shoulder those costs.

The capitalization rate is used to compute the lease amount, which influences the rate of return expected by a real estate investment. 

The tenant’s trustworthiness heavily influences this rate.

The essential rent value in a NNN agreement is usually low since renters spend a lot of money on other things. 

In addition, the tenant can specify a maximum limit to the spending; this allows the lessee to regulate overheads. If the cost of maintenance, insurance, and taxes exceeds the maximum, the landlord will cover a portion of the cost.

How Is a Triple Net Lease Calculated?

The amount of a triple net lease can be determined in a variety of ways. Landlords may sometimes total up all of a building’s property taxes, insurance, maintenance expenditures, and common area expenses and divide the amount by 12.

This figure represents the monthly cost. When a building has only one occupant, this procedure is sped up. 

The monthly basic rental fee is usually computed on a per-square-foot basis.

When should you consider a triple net lease?

When landlords desire a consistent stream of revenue with minimum overhead, a triple net lease is an excellent option. 

At the same time, tenants benefit from the ability to personalize their homes and achieve brand consistency.

Another benefit of these leases is that they are typically extremely flexible in terms of tax and insurance hikes. 

Furthermore, the landlord is not needed to be actively involved in the management of the property.

Can You Negotiate under Triple Net Lease?

Almost all responsibility rests on the tenant under a triple net lease. The renter is responsible for paying rent and any other costs involved with property ownership, such as taxes, insurance, running expenses, utilities, and so on.

As a result, the basic rental sum may become an important negotiation point. Because the renter assumes the risk of the landlord’s expenses, they may be able to negotiate a lower base rate. Tenants can also discuss which portions cover the landlord’s responsibility.