Net Leases are often confused as one entity, while in fact, they can refer to three types:
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Single Net Lease
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Double Net Lease
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Triple Net Lease
Together, we will go over the three types of net lease agreements and what can make each of them uniquely beneficial to your investments and business.
Single Net Lease
In a single net lease or “N Lease” agreement, a tenant pays an agreed-upon price for rent and some of the property taxes, if not all. In this contract, the landlord will be financially responsible for the other expenses like:
- Insurance
- Maintenance and Repairs
- Utilities and Janitorial Services
If you own a 4,000 square feet office building and 2,000 square feet of it is being rented, the tenant can be responsible for 50% of the property tax depending on the contract signed. As the landlord, you have to cover utility, insurance, and other operating expenses.
N leases offer lower rental costs because tenants are already expected to shoulder the property tax. The lower base rent can be an excellent way to attract potential tenants. N leases work well with landlords who prefer a more hands-on approach when maintaining the property and those who aren’t worried about having a steady ROI.
While tenants are responsible for the taxes, the municipality will still go after the property owner for missed or late payments, and there are still multiple expenses associated with this net least.
Single net lease agreements are the least popular of the three due to the many responsibilities a property owner has to contend with, like maintenance problems.
Double Net Lease
Double net leases or “NN leases” are agreements where the tenant pays the property taxes, insurance, and the agreed-upon rental price. Property owners act as the landlord and are responsible for the building’s upkeep.
NN leases are popular among large commercial real estate that has more than one space available to rent, like an office complex or a shopping center.
For a double net lease, landlords can pass a large portion of the financial responsibilities associated with the property to the tenant. It saves the property owner from yearly property tax worries and the responsibility of maintaining insurance policies.
Property owners can assign rent and fees proportionally based on the amount of space leased, especially in large properties with NN leases. Depending on the agreement, tenants can also be responsible for the maintenance cost of their rented space.
Like N leases, double net leases still require property owners to be responsible for the financial and logistical aspects of property upkeep. Landlords have to deal with unexpected costs associated with property maintenance, which could affect their profit margins.
While an NN lease removes the burden of paying property taxes from property owners, their names are still on the tax and insurance bill, which makes them responsible for missed or late payments.
Triple Net Lease
With a triple net lease or “NNN lease” agreement, tenants pay an agreed-upon price for rent and most of the property expenses. These expenses include:
- Property or real estate taxes
- Building insurance
- Maintenance and repairs
- Utilities and Janitorial Services
NNN leases are the most popular type of net lease since it practically absolves the property owner of all financial obligations and risks. The tenant pays for building repairs and upgrades, too.
While a triple net lease certainly favors the landlord, it also offers certain advantages that attract potential tenants. As a result of taking most of the financial responsibilities, tenants are offered low rental fees.
Tenants also have greater transparency when it comes to the property’s operational expenses. Reviewing these expenses can mean savings that go directly back to the tenant.
For commercial real estate investors, NNN leases offer several advantages over the other two types, such as:
- Long-term occupancy: Most NNN agreements are tailor-made for long-term occupancy (over 20 years). It removes the risk of losses caused by property vacancy, especially when in-between tenants.
- Consistent income: NNN leases can provide a constant income stream due to a steady flow of rent over an extended period. Landlords are also free of the financial responsibilities of handling property expenses, like building repairs.
- Low-risk investment: NNN leases are one of the most secure real estate investment opportunities available. Like bonds, net-leased properties provide a stable and predictable return on investment over time, making it low-risk.
- Builds equity: Triple net leased properties are usually added to investment portfolios as a low-risk strategy to create more equity. Since NNN leases are transferable, investors can sell the property whenever the market or population spikes.
Brisky Net Least Specializes in Triple Net Lease Investments
Whether you’re a first-time commercial real estate investor or an experienced one, knowing the basics of net leases will help you make a sound decision regarding your tenancy agreements. When purchasing commercial properties with net lease agreements, review your contracts in detail, so you’ll know what kind of responsibility you have as the property owner, and seek counsel to ensure you are getting the best deal possible.
The experts at Brisky Net Lease can function as attentive and responsive advisors in every step of your commercial real estate investing transactions. Contact our brokers today to get more information about the market, our listings, and our services.