Introduction
If you’re looking to lease commercial property, you may have come across the term “NNN lease.” This lease type has become increasingly popular in recent years, but what does it actually mean? In this article, we’ll dive into the basics of NNN leases, including what they are, how they work, and what you need to consider before signing one.
What is an NNN Lease?
An NNN lease is a type of lease agreement where the tenant is responsible for paying all three of the property’s expenses: property taxes, insurance, and maintenance costs. The tenant pays these expenses in addition to the base rent payment, hence the term “triple net lease.” Essentially, the tenant is responsible for all the costs associated with the property, while the landlord simply collects the rent payment.
How Does an NNN Lease Work?
In an NNN lease, the tenant is responsible for paying property taxes, insurance, and maintenance costs. These expenses are usually paid directly to the landlord or property management company. The base rent payment is usually lower in an NNN lease compared to other lease types since the tenant is responsible for the additional expenses.
Property Taxes
The property taxes are based on the assessed value of the property and are paid annually. In an NNN lease, the tenant is responsible for paying their share of the property taxes. The landlord will provide the tenant with the tax bill, and the tenant will pay their portion of the bill directly to the taxing authority.
Insurance
The landlord is responsible for insuring the property, but the tenant is responsible for paying their share of the insurance premium. The tenant’s share of the insurance premium is usually based on the square footage of the leased space. The tenant will pay their portion of the premium directly to the insurance company.
Maintenance Costs
Maintenance costs include repairs and upkeep of the property. In an NNN lease, the tenant is responsible for paying their share of the maintenance costs. The landlord will usually provide the tenant with an estimate of the annual maintenance costs, and the tenant will pay their portion of the costs directly to the landlord.
Pros and Cons of NNN Leases
While NNN leases can be beneficial for both landlords and tenants, there are also some drawbacks to consider.
Pros
One of the biggest benefits of an NNN lease is that the tenant has more control over the property. Since they are responsible for the property’s expenses, they can ensure that the property is well-maintained and properly insured. Additionally, NNN leases are usually long-term leases, which can provide stability for both the tenant and landlord.
Cons
The main downside of an NNN lease is that the tenant is responsible for all the property’s expenses. This can make the lease more expensive for the tenant. Additionally, if the property taxes or insurance premiums increase, the tenant will be responsible for paying the higher costs.
Considerations Before Signing an NNN Lease
Before signing an NNN lease, there are a few things to consider.
Financial Considerations
Since the tenant is responsible for paying all the property’s expenses, it’s important to carefully review the lease and estimate the total costs. Additionally, it’s important to consider the potential for increased expenses, such as property tax increases or higher insurance premiums.
Property Maintenance
Since the tenant is responsible for maintaining the property, it’s important to ensure that the lease clearly outlines the landlord’s and tenant’s responsibilities. The lease should specify who is responsible for certain repairs and maintenance tasks.
Length of Lease
NNN leases are usually long-term leases, so it’s important to consider the length of the lease before signing. It’s important to ensure that the lease term aligns with your business’s needs and goals.
Conclusion
NNN leases can be a great option for tenants who want more control over their leased property. However, it’s important to carefully review the lease and consider all the potential expenses before signing. By understanding the basics of NNN leases, you can make an informed decision that’s best for your business.
