An NNN lease (also known as a Triple Net Lease) is a lease agreement where a tenant agrees to pay all of a property’s expenses, including maintenance, taxes, and insurance. A standard lease agreement typically requires a property’s owner to pay these, with tenants only being required to pay for a property’s bills.
Unless you are a real estate expert, you likely have never encountered this kind of tenancy agreement. It’s not surprising if you haven’t because they are relatively uncommon.
This post will tell you about NNN leases and how they can benefit both tenants and landlords:
You probably have never encountered an NNN lease before because they aren’t typically used for residential properties. More often than not, NNN leases are used for commercial properties. Before taking out an NNN lease, it’s essential to work out their costs. You need to know how much you will have to pay because NNN leases can be slightly more expensive than ordinary leases. A triple net lease calculator will help you to work this out. Knowing how much you will have to pay will make it easier to form a budget.
In a triple net lease, your property’s taxes, maintenance costs, and building insurance are all included in your tenancy agreement, meaning that you have to pay them. In addition to these, you also have to pay for ordinary expenses, like the bills and the rent. Significant repairs are usually handled at the landlord’s expense, although it is essential to carefully read through your contact and ensure that this is the case first. Every contract is different and therefore needs to be thoroughly read and understood before signing.
What’s Not Included?
The items not included as part of a triple net lease include roof, parking lot, and system repairs. Other things that are not typically considered to be maintenance are also excluded from NNN leases. Going back to the point made in the previous section, it is essential to first read your tenancy agreement before signing it so that you can be sure about what’s excluded (and what’s included). Failing to read through your contract could result in you being lumped with more expenses than you originally planned for.
How Do NNN Leases Work?
NNN leases work in the same way that other leases work. You find a property you are interested in, sign the contract, and then assume control over it. NNN leases are offered for commercial properties because the costs of property taxes, insurance, and maintenance can be very expensive. Landlords prefer to have these kinds of leases because it allows them to save money. It also compels tenants to treat their leased property with more care because failing to look after it could raise huge expenses.
Benefits for Landlords
Landlords are guaranteed profit on the properties they lease using the NNN method. This is because they don’t have any unexpected expenses to pay (unless the building’s structure or car park becomes damaged, which is unlikely). While being a landlord, in theory, seems profitable, in practice, it seldom is. The reason for this is that landlords constantly have to pay to make repairs to their properties. With triple net leasing, there are fewer repairs, meaning they are guaranteed to profit.
Because triple net leases require tenants to pay for property maintenance and insurance, landlords are given more robust protection. Landlords don’t have to worry about their tenants treating their property negligently and causing damage intentionally because they are contractually obliged to repair anything. This means that it’s in the tenant’s best interests to treat the property well. If they begin to mistreat the property and don’t make repairs, the landlord can take them to court, and a judge can issue a court order stating that they need to repay the landlord for the damages.
A very annoying part of being a landlord is constant involvement. When they know the landlord’s paying, tenants phone up for more or less everything. Rather than making repairs themselves, even simple ones, they will phone their landlord and ask them to. Not only do landlords save money when choosing a triple net lease, but they also get to spend their time doing other things rather than worrying about making repairs, dealing with contractors, and then negotiating payment.
Because there is less involvement and landlords have fewer financial obligations, there is a much lower risk. Landlords don’t need to worry about their tenants incurring huge bills on their properties because the tenants themselves are responsible for any maintenance payments (other than those that are structural). Lower risk means that landlords have a lot less stress to deal with. Being a landlord can be extremely complicated when you have to deal with constant repairs, risk, and involvement. The less risk there is, the more pleasurable it is being a landlord, making triple net leases a great idea.
Because profit is guaranteed and less financial involvement is needed, landlords can ensure that their property investments are profitable. If you are a landlord considering purchasing property and then leasing it on a triple net lease, then it’s a sure-fire way to make a profit. Essentially, when you do this, you can recoup all the money you have paid for a property with no expense because the tenant will pay you all of the property’s bills and insurance. A triple net lease is especially good if you are taking out a mortgage to buy commercial property.
Benefits for Tenants
One of the main advantages for tenants in leasing an NNN property is that they have greater control over what they choose to do there. Since there is less landlord intervention, and they are the ones paying all of the property’s bills, they can take more significant risks and do more with the space. With that said, it is still against the law for tenants to make structural amendments and changes without the landlord’s express written permission and a building permit. Greater control means that tenants have more freedom.
One of the worst things about leasing a commercial property is the instability of landlords. If you don’t have a reliable landlord, you could end up having your tenancy agreement terminated early. An early tenancy termination could seriously interfere with your business’s operations. When you take out an NNN lease, you have greater security. This is because NNN leases are more desirable and beneficial to landlords. Because you have more control and they won’t intervene as much, you won’t ever have to worry about a sudden eviction as long as you maintain payments on the property’s bills.
It can be challenging to plan a budget when you typically lease a property because you don’t know which maintenance and expenses the landlord will expect you to pay. You can budget more accurately when you take responsibility for the property’s maintenance and bills. While it is a lot more expensive to take out an NNN lease, the fact that you can budget more effectively is a lot more helpful. More accurate budgeting means creating more accurate financial forecasts, which you can use to increase your company’s profitability.
Because triple net leases are more popular with landlords, securing properties is easier when you look exclusively for them. Not many people want to take out an NNN lease because it can be more expensive. If you are actively searching for one, you will likely appeal to landlords as a potential tenant. They won’t have to worry about you not paying bills because they can trust you by seeking out this kind of tenancy arrangement. Additionally, because few people are looking for these tenancies, the landlord you take out a tenancy agreement with will be happy to sign you up as a tenant because it means their search for a tenant will be over.
When you lease a property on an NNN basis, you can build trust with the property’s owner. This means that they may be more likely to give you discounts. The more trust and the better your relationship with your landlord, the more likely they will give you deals in the future. Additionally, they may have other properties they could lease you, which could come in handy if you want to expand your business.
Triple net leases are a great option for tenants and landlords. Landlords have fewer worries, and tenants have more control. With more and more people starting their own businesses, it’s only a matter of time before we begin to see people taking out more NNN leases because of their benefits.