(Newswire.net — February 22, 2017) — A triple net lease has drawbacks and benefits to both tenant and landlord and these factors should be carefully considered before either party enters into this type of lease agreement.
Triple net leases are most often used for retail and some industrial rentals. These leases are less expensive than gross leases, and place the costs of many of the expenses related to the property in the hands of the tenant. In addition to rent, these include: utilities and a portion of the total property’s insurance, taxes.
Lower Rent – But Fluctuating Expenses
The primary benefit of a triple net lease to a tenant, is lower rent. The landlord will not pay any costs associated with utilities, insurance and other key areas that would be included in a gross lease. Since the tenant is taking the responsibility for all of these costs, his rent is cheaper. How much cheaper will depend on many factors including, rental market and type, location, and size of property.
The expenses for many the things the tenant is responsible for in the lease will fluctuate. If the property taxes or insurance on the property goes up, the operating expenses will rise too. Also any unexpected costs such as repairs or damages to the property will be partially or fully the responsibility of the tenant. These can strain a tenant finances, especially if they happen more than once. The tenant has the right to audit the landlord’s expense calculations to make sure the expenses being charged are appropriate. The landlord is able to put some minor costs off on the tenant for his use of the property, but typically landlord would make more money offering a gross lease because these costs would be overestimated.
Control of the Property
Under a triple net lease, since the tenant is more responsible for the property, the tenant typically gains much more control over the property. The tenant usually has the right to make small changes to the property, and operate independent of the landlord’s control (of course this is all moderated by the lease agreement). Under a gross lease, the landlord is responsible for management and has a considerable amount of control over the property.
Repair and Maintenance
This can be a tricky area for both tenant and landlord if the property is not well maintained. A building in good condition with low maintenance is definitely a benefit for a tenant on a triple net lease, since he is responsible for any repairs. If the building is not as well maintained or is older, the benefit shifts to the landlord, because the chances for repairs is much higher. Some leases may include that the tenant is responsible for employing any property maintenance employees.
Conclusions
Triple net leases have benefits and drawbacks for both tenants and landlords. Benefits can be swayed to one side or the other based on what specific terms are negotiated in the lease. Both need to consider the property, its condition, the purpose it is being leased for and the length of the lease to determine if it is the best lease for them.