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Leasing commercial property can be complicated and confusing. One term that commonly comes up is "Triple Net Lease," "NNN," "net-net-net lease" or "absolute-net lease." This is a common lease type for single-tenant properties, but may also come up for units in retail spaces such as strip malls. It's important for businesses to understand what they are getting into if they sign a triple net lease.
A triple net lease is, essentially, a lease in which you take on all expenses of the property. And yes, there are single and double net leases too. A single net lease includes property taxes, a double net lease includes taxes and insurance. A triple net lease also includes maintenance. This means that in exchange for a lower lease fee, you take on all of the expenses of the property.
An absolute net lease may go further, passing on every imaginable expense including major repairs. In a triple net lease, you are generally not on the hook for major incidents, while an absolute net lease may leave you paying rent on a building that is currently uninhabitable. In retail spaces, triple net leases mean you are also charged a percentage of common area maintenance (CAM), such as janitorial services, generally determined by square footage. In other words, you should be very careful with absolute net leases, but triple net leases are often reasonable to sign. The opposite of a triple net lease is a gross lease, where the landlord covers all the expenses but for a much higher rent.
You will know what kind of lease you are signing when you are negotiating the letter of intent (LOI) as it will state your net rent and will detail the additional costs.
There are a number of advantages to signing a triple net lease:
Triple net leases tend to benefit landlords, and there are a number of disadvantages:
As already mentioned, triple net leases tend to favor landlords. Because of this, tenants should be willing to negotiate, the ease of which can depend in part on the supply of suitable commercial space in your area. However, you should make sure that you avoid these pitfalls and in some cases it may be better to wait to open or relocate to avoid them.
Here are some potential pitfalls to look for or avoid:
Although NNN leases are generally less favorable, in many areas they are the only option and your best route is to negotiate the best you can within the net-net-net lease framework. Remember that you can always at least try to negotiate with your landlord, and that you should work with them in a non-confrontational manner.
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