Find out if an NNN Lease is Right for You
You’ve already learned about a triple net lease if you’re a homeowner. You might, though, be thinking about whether that sort of lease arrangement may be correct for one of your investments or not.
A typical lease arrangement used in commercial real estate is the NNN Lease, also referred to as the triple net lease. Given the NNN contract’s success, many commercial real estate practitioners also generally misinterpret the triple net lease arrangement.
Pros with a landlord’s triple net lease:
Truthfully, the option of a triple net lease arrangement as the building owner provides certain advantages. For your review, we have set out the most significant ones below. To have a clear understanding of what to expect from this type of structure, take a minute to check them over.
What’s a Triple Net Lease (NNN)?
First of all, what is a triple net, or NNN, lease, exactly? A triple net (NNN) lease is characterized as a lease arrangement where the occupant covers all operational costs associated with a property. As the owner is not liable for covering the running costs, the triple net or NNN lease is called a “turnkey” investment. With that said, you have first to grasp the scope of commercial real estate leases to understand the NNN contract truly.
Why are tenants fond of Triple Net Leases?
Many landlords favor triple net leases because they decrease their risk exposure substantially. The rentals give a steady supply of income. The homeowner will not have to think about the rise in expenses if issues regarding upkeep or property prices contribute to tax rises. In a triple net lease arrangement, it is a common myth that landlords face zero risks. The landlord might unexpectedly be met with massive expense rises if a tenant defaults. Plus, for tenants of buildings where triple net leases are in place, long-term vacancies are quite expensive.
What is not included in the NNN lease?
Even though the lease is a genuine absolute net lease, a popular myth is that even a full absolute net lease includes ALL costs associated with a house, which is not always the case. Although a real absolute NNN lease with a good tenant should be seen from the landlord’s viewpoint or investor as a turnkey commercial house, even an absolute net lease has certain costs that the tenant would not pay.
Long-term are these leases:
Triple net rentals are longer than residential leases, equivalent to any corporate real estate contract. However, the NNN lease will extend for up to 25 years or longer if the typical commercial real estate lease lasts from three to five years. In certain examples, land leases that extend up to a period of 99 years can be used.
Traditionally, the homeowner profits from getting a longer contract period so there is less turnover to think about because there is therefore less risk of vacancies.
The landlord has limited liability:
Since much of the expenses of maintaining the property up and working are transferred on to the occupant in a NNN contract, the owner’s liability is typically quite low in this case. In certain instances, the occupants are liable for covering tax and real maintenance expenses plus any development or capital costs necessary to render the land available for them and all specific operational costs required to maintain the building up and running.
Finally, triple net lease land contracts are usually transferable, implying that even though a lease is in effect and the house is leased, you will sell your equity in the property. As the land owner, this is a big advantage for you, and it ensures that when it makes the most sense to you, you will have the freedom to go forward with your buying plan, because you will not have to think about structuring a deal around when the contract is coming to an end.