WHAT KIND OF REAL ESTATE TRANSACTIONS USE TRIPLE NET (nnn) LEASES?

The letters “NNN” sometimes strike fear in those renting space. A NNN lease, also known as a net-net-net or triple net lease, is a type of real estate lease that requires the tenant to pay, in addition to rent, all of the property's associated costs. The three nets in a triple net lease are real estate taxes, property insurance and maintenance costs. Because the landlord shifts these extra costs to the tenant, the rent he charges for a triple net lease is almost always less than for a comparable lease in which the landlord assumes these costs.

Benefits to Landlords:  Any type of real estate transaction can utilize a triple net lease. This includes residential, commercial and industrial real estate. That said, this type of lease is used most often in commercial real estate transactions, particularly ones involving freestanding buildings. Many large companies that operate under the franchise model, such as McDonald's, lease buildings to their franchisees under the triple net structure. Companies that make money by investing in and leasing out multi-million dollar commercial properties often cannot be bothered with keeping up with things such as maintenance. They circumvent that responsibility by lowering the rent and shifting the extra costs associated with the building to the tenant.

Triple net leases are also gaining popularity in residential real estate. In snatching up inexpensive properties in the wake of the 2007-2008 financial crisis and turning them into rentals, many investors find they do not enjoy dealing with maintenance and insurance issues any more than larger commercial investors enjoy these issues. As a result, they are taking a page from the commercial playbook and passing those costs to tenants by way of triple net leases.

At First & Main, we're experienced in all phases of lease negotiation and renegotiation. We know what to look for and how to protect you from potential pitfalls. Remember, there is never a cost to the lessee in a lease negotiation! And we're happy to review even existing leases to advise you how to handle renewals