What is a Triple Net Lease?
- Posted on August 31, 2020
- Financial Terms
- By Ugochukwu
The typical idea a lot of
people have when leasing a property is that all they have to pay for the property
is their rent and probably any other additional expenses that may be required
of them.
As it concerns payment
when leasing a property, we have various aspects, it could be a gross lease or
a net lease. A net lease includes the single net lease, double net lease, and
the triple net lease. These three differ, one from the other, but we’ll be
taking a look at triple net lease here.
A net lease is a contractual
agreement that would have the lessee paying a particular sum of costs
concerning a property or paying all of it which includes the rent of the property.
Unlike in a gross lease,
where the landowner is responsible for other payments concerning the land and
the tenant only has to pay a rental fee. In a net lease, the tenant is assumed
to be the landowner to an extent and pays for certain costs that are associated
with the property.
A quick look at the various
forms of net lease and what they entail so triple net lease can be easily understood.
Single Net Lease:
In a single lease, the landowner gives the tenant the responsibility of bearing
a little risk, which is to pay for the property taxes in addition to their rent,
this addition reduces the rent, and the landowner goes ahead to cover other costs
and expenses that will be incurred, such as maintenance.
Double Net Lease: For
a double net lease, the tenant pays for both the property taxes and insurance
premiums in addition to the rent. This also reduces the rent to be charged by
the landowner. Other costs, such as maintenance costs are taken care of by the
landowner.
For a triple net lease,
an agreement is made by the tenant to pay other costs apart from the rental fee
of the land, these other costs are; maintenance cost, building insurance, and real
estate taxes.
If the agreement made was
not a triple net lease, then such costs or expenses will be borne by the landlord
and not the tenant. As a result of this responsibility which the tenant assumes
to handle the various expenses, the charge of rent will be lower.
The triple net lease
which is also known as (NNN) net-net-net lease are usually long term, which is
around 10-15 years They usually involve more than a single building, with each
building serving a different commercial purpose, all within the control and
maintenance of a single tenant. In a triple net lease, the commercial properties
being leased out may include, industrial parks, office buildings, and shopping malls.
The triple net lease has
great benefits, and one of that is the potential increase in the value of the
property over some time. As one also accommodates other tenants into various
aspects of the line of properties, it brings about a reasonable level of stable
income.
The amount paid for taxes,
insurance, and maintenance may not be much of a burden as long as other tenants
are occupying other areas and making their monthly payments as it is required
of them.
On the other hand, a
major drawback might be when constant repairs are being made on the property,
eating deep into the revenue that should be generated.
The vacancy can be also another
problem. Having no one occupying a property and still paying for the cost
associated with the property isn’t what anyone who has invested much into a
particular property would want.
Those who desire to
invest in a triple net lease, have to be accredited with a net worth of a
minimum of $1 million which excludes their primary residence value or an income
of $200,000.
For one seeking to take
on investment in triple net lease, proper research should be carried out on any
property which they are interested in. This is to avoid spending more on
repairs and maintenance during the duration of the lease, thereby reducing
their potential returns on investment.
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