Triple net lease comprises three elements. The first being the lease on the property. Normally this amount either stays stagnant throughout the term of the lease or there is a built in inflation clause. But at least you’ll know this amount for the duration of the lease. The second element is Common Area Maintenance or (CAM). This amount is shared by all tenants in the property, normally based upon square footage of the leased area. This includes all maintenance to the property, both inside and outside. This amount can vary by the costs involved in the care of the property. The third element is Taxes. Real Estate Taxes are proportionately shared by all the tenants of the property. These last two elements can vary, so they are the unknowns going forward. The lease can contain “caps” in how much they go up per year, but it’s up to the landlord whether they accept that in the lease contract.
Understanding The Concept:
The triple net lease, also referred to as (bondable lease, absolute NNN lease) being its part, is very common in commercial real estate – in mixed-use, retail, office and industrial space. With a NNN lease, most of the expenses for a property are passed through to the tenants of that property – including common area maintenance (CAM), taxes, and insurance. These expenses are split based on the % of the space the tenant occupies.
Generally, NNN leases are used in long term situations where a tenant is expecting to stay in a location for a number of years. As a result of this long term commitment, the fixed rent is generally lower than a gross lease. The lease is a contract. Make sure to closely evaluate all the language, conditions, and restrictions you will agree to. And remember to negotiate – this is a long term commitment.
What Is The Exit Strategy For A NNN Lease?
Now that you have understood the concept of an NNN ground lease and can easily identify its components and aspects, it is very important and crucial to also understand the exit strategy of the NNN ground lease or triple net lease. Understanding the exit strategy is not only important but it is very helpful in event of any dispute arising between the landlord and the tenant. It totally depends upon whether you the lessee or the lessor.
In either case, the lease or contract should always have language for how to resolve the end of the lease. There might be penalties for wanting an early release. There might be requirements to buy out the lease. Because a Net-Net-Net lease tends to be a lot lower cost than a Gross lease, there will certainly be special conditions for exit to protect both parties. So Strategy: Read the lease. Then if you have questions, have your lawyer read the lease. Then if you have questions, discuss them with the landlord (or lessee.)