What are the Three Nets in a Triple Net Lease?
A Triple Net Lease is a lease in which the tenant pays maintenance, insurance, and property taxes in addition to the regular rent instead of the landlord. The tenant assumes all operating costs of the property. It includes variable and fixed costs, as well as the costs of own accommodation and even the maintenance of any common area that may be related to the property.
Triple net leases are one of the most popular types of net leases and are used for retail space or detached commercial buildings. This real estate lease is described as a lease between a landlord and a tenant, with the obligation to pay operating expenses transferred from the former to the latter.
A triple net lease is considered to benefit the landlord more than the tenant, and it is important to review the contract and agree on the cap that is charged annually. Leases tend to fluctuate significantly and are subject to increases and decreases in operating costs.
Triple Net Lease example
Due to poor health, John owns a bookstore and is no longer interested in it. He decides to rent out his property instead of renting it out to a neighbor because he really wants to deal with maintenance and tenant issues.
This will free it from any operating and maintenance costs. The contract has been drawn up, and John receives a fixed monthly payment without having to think about all the little details. It’s a neighbor who now has to pay insurance, maintenance, taxes, and property rent.
What are the three nets in a triple net lease?
Net leases with three tenants NNNs are a subset of commercial net leases.
Double net (NN) leases in commercial real estate are also frequent.
In this kind of lease, the tenant is responsible for two rather than three obligations: property taxes, insurance payments, and rent. Because of the extra expenditures that the renter must undertake, the basic rent—payable for the space itself—is often lower. On the other hand, all maintenance expenditures remain the landlord’s obligation, which he pays directly.
Single net leases (N) are less prevalent. In this case, the landlord passes a little bit of risk to the renter, who just pays the property taxes.
Key features of Triple Net Ownership
Triple-net rent properties are considered a good investment opportunity for retirees and professionals. Some of the important characteristics of a triple net rental property are as follows:
Triple network leasing is more commonly used for stand-alone commercial buildings and retail buildings such as banks, office buildings, malls, industrial parks, restaurant chains, fast food restaurants, gas stations, convenience stores, grocery stores, government offices, and pharmacies.
The tenant is responsible for the costs of the property, such as property insurance, taxes, maintenance, utilities, and rent.
The tenant of a property with a triple net lease is responsible for paying for the repair and maintenance of the premises, exterior walls and roof.
The triple net lease does not cover the accounting or legal fees charged by the APC and the landlord’s attorney, respectively, in the preparation or review of documents.
Some operating expenses for triple net lease properties that can be negotiated between landlord and tenant are parking fees, inspection fees, broker fees, landscaping, security services, property fees, and management fees.
Triple Net Lease properties are considered a good investment for investors as they offer a stable source of income but with less risk.
A triple net lease has a lower rent because it is the tenant who is responsible for running costs.
It’s a simple concept that makes owning and managing properties easy.
An important characteristic of a triple-net lease is its inherent flexibility and stable income.
Main advantages of Triple Net Lease
Long term residence
Most triple net leases have a long-term tenant structure (over 20 years). This is beneficial for landlords as it eliminates the risk and loss of property that is left empty between tenants.
Low-Risk Investments
Since the tenant is responsible for almost all costs associated with the property, from taxes and insurance to regular maintenance costs, a triple net lease agreement is a fairly low-risk investment for the investor.
Constant stream of income
A triple net lease can provide the investor with a stable source of income. This type of lease is structured to include a fixed amount of rent every month for an extended period of time. In addition, much of the unknown or catastrophic real estate costs will be passed on to the tenant, helping to protect any risks in the investment.
Opportunity to increase capital
Leasing on a triple net lease basis is often added to investment portfolios as a conservative, low-risk strategy to raise capital. In addition, investors may decide to sell the property when the market peaks, population growth, or when they are ready to use that capital in their next investment.
Reduced landlord fees
With a triple net lease, you have almost no landlord obligations as you would with a more traditional lease. With more time and money, the investor can move on to other ventures.
Location
Usually, properties with a triple rental network are located in accessible areas, in close proximity to other popular businesses. This can help the tenant increase traffic and attract the attention of customers who visit other businesses nearby.
Tax incentives
Since the tenants of the three net leases are responsible for paying property taxes, they can include these costs in their business expenses and receive some tax credits for their business.
Long-term business footprint
Tenants who agree to a long-term lease have the opportunity to create a recognizable and long-term location for their business.
Is triple rent a good idea?
For both tenants and landlords, triple-net renting can provide some benefits. The tenant has more freedom with their structure; they can customize their space for greater brand consistency without the capital investment of a purchase. Another advantage is that these leases tend to be quite flexible: limits on tax increases, insurance, etc. For a landlord, a triple net lease can be a reliable source of income and have very little overhead. The landlord also does not have to play an active role in the management of the property.
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