NNN, or triple net leases, are a collection of expenses added to tenant’s rent as safety precautions for landlords. Among triple net, there is also a single net and a double net lease that provide different pros and cons. These leases typically include property insurance premiums, maintenance costs, damage liability, and property taxes on top of their monthly renting fees for the space. Although tenants are held more responsible for the upkeep and maintenance of the location, triple net leases are not exclusively beneficial for landlords as tenants gather unique benefits as well. Here are some pros and cons for commercial triple net leases and what they mean.
Because tenants are responsible for nearly all the costs for the upkeep and maintenance of the property, this poses as a great opportunity for investors. Triple net leases are used mostly for long-term agreements, allowing less flexibility for quantity of tenants allowing renters to have a more solidified presence while landlords don’t need to go through the hassle of multiple renters and agreements. This allows companies to have a recognizable footprint wherever they are set up in contrast to having to advertise every relocation. Especially if the landlord owns other locations or sections on the same property, the association by proximity with other businesses can help drive traffic to the location raising chances for more business. As an investor this is also a stable revenue stream as risk of property damage and value retention is on the tenant, reducing revenue fluctuation. The duties of the landlord are also reduced, allowing more opportunities to both parties to be occupied with their primary vocations. Lastly, by paying property taxes, tenant businesses are able to fuse those expenses into their portfolios allowing tax deductions on the business expense.
Some cons to having a commercial tiple net lease is that although tenants will benefit from the stable renting fees there is a risk for landlords as this lease doesn’t allow the raising of the rent. So, if the local area’s prices rise or the property’s value rises, then there would be a long-term loss in opportunity cost had the tenants applied a different lease. The expenses to keep a large property running and appealing while still looking for renters can be huge, therefore making it a risky investment potentially at a big loss until tenants move in. Because there is so much that can go wrong with a large commercial facility, tenants are required to have the finances, or more importantly the credit, to address any major issues that may occur. Lastly, tenants are also responsible for any tax liabilities, allowing landlords freedom from oversights at the expense at the risk of tenant’s mistakes.
Commercial triple net leases can be very beneficial for both renters and tenants depending on the situation. Whether you’re renting or looking to invest in a property make sure you first understand all the risks before committing to a long-term agreement like a triple net lease.
Content Writer and Researcher