WHAT IS A TRIPLE NET LEASE DEFINITION & HOW THEY COMPARE TO OTHER COMMERCIAL INVESTMENTS
Triple Net Lease definition: The renter is accountable for their proportionate portion of property taxes, insurance, shared operating expenses and shared area utilities. Renters are additionally liable for all expenses connected with their own occupancy including personal property taxes, janitorial services and all utility payments.
If tenant’s premises are a portion of a larger property, the common area maintenance charges (CAMS) will be segmented amongst the renters of the building, usually based upon the renter’s square footage percentage of the total complex. Normally, the property owner will be accountable for the structural integrity of the building.
NNN DEFINITION TYPES:
Net leases determine the obligations of both the owner and the lessee. Below are the net lease definition phrases which are most prevalent:
- Single Net Lease Definition – Lessee accepts to pay a monthly base rent and agrees to pay the property taxes. The owner is accountable for all other operating expenditures of the property.
- Double Net Lease (NN) Definition – Lessee consents to pay a monthly base rent, property taxes, and property insurance. The owner is accountable for all other operating expenditures of the property.
- Triple Net Lease (NNN) Definition – Lessee consents to pay a monthly base rent, property taxes, the property insurance, and the maintenance.In a triple net lease, there may be several legal protective clauses which could release a lessee of his obligations. For instance, a triple net lease may release the lessee of his accountability if the property is subject to an eminent domain procedure.
- Bond Lease / Absolute Triple Net Lease Definition – Lessee consents to pay a monthly sum base rent, property taxes, property insurance and maintenance. With an absolute triple net lease, there are no legal protections if a lessee fails to meet his financial duties.
WHAT IS TRIPLE NET LEASE COMPARED TO OTHER FORMS OF COMMERCIAL INVESTMENTS?
Compared to office, warehouse, storage facilities, parking lots, apartments and other forms of commercial investments, triple net leases are by far the most stable and less burdensome of the opportunities available. Most of the ventures mentioned above have business related and management associated with their financial outcome.
Gross leases and modified gross leases associated with most office and industrial buildings involve landlord responsibilities under various conditions. These entities have numerous obligations for the landlord to oversee or pay.
When many duties or responsibilities are passed on to the investor, a much larger return should be expected for the work and financial burden placed on the landlord. Most of these types of investors are younger in age and can tolerate the various problems that occur monthly.
The baby-boomer’s and older investors ready to retire, have little desire to be responsible for all of these matters and prefer a smaller return that is safer and less stressful.