A Commercial Property Management Checklist – A Triple Net Lease

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A Commercial Property Management Checklist A
Triple Net Lease
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What is a Triple Net Lease (NNN)?

• A Triple Net Lease (NNN) is an arrangement
  between the tenant and the landlord wherein the
  tenant is responsible for paying all the
  operating expenses in addition to rent. NNN
  stands for maintenance, insurance and taxes and
  is considered as the most advantageous leasing
  method for landlords. However, there are risks
  involved which can be detrimental for the
  landlord as well.
• The term, Triple Net Lease is used loosely and
  therefore it is always essential to clarify what
  the lease includes or excludes in the leasing
  contract.

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Risks of a Triple Net Lease

• Difficulty in the assessing credit worthiness of
  tenant
• It is important to assess the credit worthiness
  of the tenant prior to finalising the contract.
  Single tenant triple net deals usually involve
  publicly traded companies and assessing their
  financial background is relatively easy as their
  credit ratings are available in the public
  domain. On the other hand, credit analysis of
  private investments requires more effort and not
  assessing them properly might create problems for
  the landlord as there is a high risk of bad debt.
  In such situations it is advisable to avail
  professional commercial property management in
  New York to ensure proper credit assessment of
  tenants.

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Risks of a Triple Net Lease

• Tenant might not report damages
• The maintenance of the property depends on the
  tenant. However, he/she may try to avoid paying
  maintenance costs by not reporting damages to the
  property. Also, the insurance chosen by the
  tenant might not cover all damages to the
  property. The tenant might let the policy lapse
  by not paying for insurance. In both these cases,
  there is a risk of bankruptcy and the landlord
  may be left with no choice but to pay off all
  pending liabilities. The maintenance of the
  property depends on the tenant. However, he/she
  may try to avoid paying maintenance costs by not
  reporting damages to the property. Also, the
  insurance chosen by the tenant might not cover
  all damages to the property. The tenant might let
  the policy lapse by not paying for insurance. In
  both these cases, there is a risk of bankruptcy
  and the landlord may be left with no choice but
  to pay off all pending liabilities.

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Benefits of a Triple Net Lease

• Tenants can be found easily
• Since a Triple Net Lease comes with lower rents
  for the tenants (as they are also sharing other
  financial obligations), landlords usually face no
  difficulty in finding new tenants. Especially
  when the building is new, it is preferable for
  the tenant because the rent is low and
  maintenance expenses too are not that high in the
  initial phase.

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Benefits of a Triple Net Lease

• No maintenance worries for landlord
• The tenant will be sharing the primary
  maintenance costs, insurance and property taxes
  with the landlord. The landlord need not worry as
  the maintenance responsibility rests with the
  tenant. Also, there is a regular flow of revenue
  and the lease term for a commercial property is
  generally for 10 years or more, thus providing
  the landlord with ample time to seek new tenants
  in case of a premature vacancy.

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