When owning a commercial space, you will encounter the potential for different lease structures for your tenants. The most common type of lease you may consider is a single net lease, wherein your tenant pays for the base rent. Single net renters also sometimes take care of the utilities and insurance, depending on the lease agreement.
Another type of lease structure for your tenants you may consider is called a triple net lease or an NNN lease. This lease structure can be confusing for new commercial space owners since it sounds similar but deviates from a traditional single net lease in multiple ways.
This is why it’s important to know what an NNN property and lease agreement is so that you can inform your potential renters of the differences and advantages between these common leasing options.
In this article, Brisky Net Lease explains what a triple net lease property is and what it entails for both owners and tenants.
What Is a Triple Net Lease?
A triple net lease is arguably most commercial landlords’ favorite lease structure. It makes the tenant responsible for most of the property’s expenses, including the rent, utilities, insurance, and maintenance.
A triple net lease is favorable for landlords because it reduces the risk of renting your property. If, for example, taxes or insurance rates increase, then you won’t have to carry the burden of the additional expense since the tenant would be the one to pay for it.
Some commercial space renters are scared of renting a NNN property because they immediately assume it will be more expensive than a single net rental. However, a triple net lease comes with several financial advantages and perks for your renters, too, which can actually lower their total operating expenses, making the total cost more affordable than some single net properties. It is important to make sure your potential commercial renters know this!
Reasons to Lease a Triple Net Property
1. Lower Monthly Base Rent
The biggest advantage of triple net leases is that the base rent is often lower than single net properties. Since you, as the owner, will not have to pay for taxes, insurance, or maintenance expenses, you can charge lower monthly rent than a gross lease agreement (i.e., fixed rental rate), which is very tempting for many renters.
Often, you can make the monthly base rent negotiable, too. Of course, commercial landlords prefer tenants with a solid track record of financial responsibility so finding tenants who are happy to have more stock in the building and associated fees can be a great tool to gauge history, business success, and creditworthiness. Then, you can incentivize with a lower base rent.
2. Pro-Rata Share of Expenses
The overhead expenses (taxes, insurance, maintenance) are often prorated among all the tenants in your commercial property, which can make the financial responsibility for each of your tenants lighter. This can work to the advantage of your renters if your property has low vacancy rates as the costs will be divided among a greater number, lowering the pro-rata share for each.
3. Tenant Improvement Allowance
You can offer a tenant improvement allowance to encourage more people to sign your NNN lease. This lease incentive is a construction allowance that your tenants can use to outfit their commercial space according to what their business needs. It covers soft and hard costs, such as electrical, plumbing, inspections, and engineering work.
Most landlords typically offer a dollar amount per square foot, but there are multiple ways you can slice this incentive!
Is a Triple Net Lease the Right Commercial Lease Type for You?
A triple net lease favors landlords in multiple ways, while still being desirable to your well-qualified tenants, which is what both parties want. If you know how to leverage your incentives and negotiate well, this lease structure can be financially beneficial to your commercial space and renter businesses as well!
Search for various types of commercial NNN spaces and compare their costs to find out which one is the most cost-effective choice in the long run for you.
If you want to learn more about commercial lease structures, Brisky Net Lease is here to help. Our goal is to fill the gap in the commercial real estate investing market, giving buyers, sellers, and investors the information and guidance they need to make more informed financial decisions.
Looking for a commercial property to buy? Contact us today!