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Net-Net-Net Lease Contracts

Net-Net-Net Lease Contracts

The Net-Net-Net Lease, Triple Net Lease, or NNN Lease is a common type of lease structure used in commercial real estate situations. Despite its popularity, it can often be misunderstood by either party utilizing this common commercial real estate lease. Triple Net Leases come with their own benefits and disadvantages, like any other lease, but are great options for businesses looking to expand.

What Is a “Triple Net Lease?”

A Triple Net Lease agreement is a type of lease that designates the tenant (lessee) as having the sole responsibility for any and all costs associated to the asset being leased in the agreement. This agreement is in conjunction with the associated rent fee applied as part of the lease. Under this legal agreement, the tenant is required to pay for the net real estate taxes on the leased asset, net building insurance, and net common area maintenance.

The lease received its name from the three “net” fees and may also be called a Net-Net-Net Lease.

Benefits of a Triple Net Lease

The benefits of a Triple Net Lease will vary from lease to lease and circumstance to circumstance. In most cases, because the lessee is paying for three net costs associated with the real estate location, the rental fee is typically much lower than any other type of common real estate lease.

Misconceptions with the Triple Net Lease

Many people will use the term Triple Net Lease, even when a contract is not specifically a Triple Net Lease, simply for ease of description. By doing so, individuals and commercial parties may end up misunderstanding the intent of a lease by the time they have signed the contract.

A common misconception is that when people talk about the Triple Net Lease, they actually mean an “Absolute Net Lease” instead. However, not all Triple Net Leases are Absolute Net Leases.

For example, a tenant may be responsible for funding the entirety of all replacements within the building (such as HVAC, roofing, plumbing, etc.). On the other hand, a Triple Net Lease may still require the landlord to cover specific expenses, fees, and other capital expenditures in the building.

When establishing your commercial real estate lease, both parties should always read the entirety of the lease. Because of common misconceptions with real estate leases, both parties will be able to reduce the likelihood of any mistakes in the future by reading the lease from beginning to end. When you may be paying for all of the costs and fees associated with the commercial real estate location, you want to make sure you know exactly what you’re paying for and what you’re not.

What’s Not Included in a Triple Net Lease?

Despite the definition of a Triple Net Lease or Absolute Net Lease, there are still some costs and fees that are not covered in the agreement. For example, it’s uncommon for a Triple Net Lease to cover any accounting costs that are issued by the landlord’s CPA (Certified Public Accountant) or any legal costs as a result of the landlord’s attorneys.

While certain fees and costs are not included in the Triple Net Lease, they are often very small in comparison to the purchase of the property itself.

Risks of Investing

While Triple Net Leases cover the majority of expenses and fees as part of the agreement, there are other risks that are worth keeping in mind. Despite the costs being covered primarily by the tenant, properties are either entirely filled or vacant. Tenant credit risk should also be considered when considering any Triple Net Lease contracts.

Variations of the Triple Net Lease

There are different kinds of leases that an individual or team can utilize.

  • Single Net Lease – Tenant is only responsible for paying property taxes.
  • Double Net Lease – Tenant is responsible for paying property taxes and building insurance while the landlord covers expenses on structural repairs and maintenance.
  • Bondable Lease – Tenant assumes virtually every conceivable real estate risk related to the property.
  • Ground Lease – Landowner leases the land for the tenant to construct a building. The tenant may then take on a Triple Net Lease. Typically at the end of the lease, the building will then revert to the landowner.

Triple Net Leases can be a great option for business owners who are looking to grow their business, establish a larger foothold in their industry, and expand their physical presence in a growing market. Triple Net Leases may come with more general fees and costs, but the rent is often low enough to make them worthwhile.