Whether you’re a commercial property landlord or a tenant, it’s essential to understand what type of lease agreement you are entering into beforehand. Not only are there different kinds of lease agreements, but the details in each can also vary.
An example of a NNN lease is a common kind of lease agreement for commercial property where the tenant is responsible for the property expenses like building insurance, maintenance, and property taxes. These costs are in addition to rent and utilities.
Because the tenant is responsible for additional costs that would otherwise be due to the landlord, the rental fee charged in a triple net lease is typically lower than the rent charge in a standard lease agreement.
Let’s have a look at the benefits and downfalls that this lease agreement has to offer tenants and landlords.
Pros And Cons For Tenants
For tenants, a triple net lease allows control over the general upkeep, maintenance, and overall appearance of the property. In addition, tenants have total control over who they pay, as with water and electricity bills. Tenants can even choose the insurance provider and negotiate lower taxes to keep costs as low as possible.
Another primary advantage of triple net agreements for tenants is that property appearance can be fully customized. For businesses, building customization is often critical for branding.
One of the more overlooked advantages of triple-net agreements for tenants is that the rental charge can be a central topic for negotiations. The tenant is managing most of the responsibilities, rendering the rental charge as profit for the landlord. Tenants can leverage this benefit to reduce overall costs substantially.
When it comes to the cons of a triple net lease for tenants, there is a heightened risk of property tax and insurance price increases. There’s also an increased chance that tenants overpay for some costs.
Pros And Cons For Landlords
On the other hand, for landlords, a triple net lease ensures less hassle because repair costs, taxes, property management, utilities, and other issues are the tenants’ responsibility. This benefit can free up a lot of time for landlords. Moreover, this kind of lease is also a stable revenue stream.
Even though landlords are liable for fewer costs, they are still responsible for expenses associated with the roof, structure, and sometimes the parking lot of the property.
The cons of these kinds of lease agreements for landlords are that finding reliable tenants can be a bit tricky. Landlords also need to consider downtime between tenants that stops rental income during vacancies. In addition, the tenants’ credit risk is a concerning factor for landlords. The tenant’s financial stability is critical because they will be responsible for key expenses.
How Is A Triple Net Lease Agreement Calculated?
There are various ways that landlords can calculate triple net agreements. In some cases, property taxes, maintenance costs, and insurance premiums are added together and then divided by twelve to conclude a monthly amount. With this, the monthly rental charge is determined by the property’s square footage.
Single Net, Double Net, Or Triple Net?
Now that you understand the pros and cons of a triple-net lease, you’ll also need to consider single and double-net agreements. Before entering into a lease agreement, it’s crucial to understand how each lease type works.
Single-net agreements are a bit less common. In this lease agreement, the tenant is responsible for merely the property taxes as the landlord limits risk. When it comes to double net lease agreements, the tenant is liable for only two additional costs; property taxes and insurance above rent and utilities. The base rental rate charge is typically a bit lower due to the extra expenses for the tenant. Lastly, the landlord is still responsible for the maintenance and repair costs of the property.
A triple net lease agreement has a few unique benefits to offer both tenants and landlords. While the tenant has more freedom in terms of customizing the space, the landlord benefits by enjoying more of a passive stable income. Even so, there are also a few relevant downfalls for both parties to consider. As a result, it’s wise to evaluate all kinds of lease agreements before choosing one for your property as a landlord, or signing a rental or lease as a tenant.
Now that you understand triple net lease agreements and the advantages and downfalls to prepare for, you can enter the lease agreement with more confidence, or choose a different kind of lease that suits your needs and preferences better.