Today, there is a popular property type in commercial real estate known as triple n (3N) or triple net, which are given to tenants with high credit ratings and which represent 3 net terms. In this arrangement, the tenant is responsible to pay the leased real estate taxes or tax net, insurance, and all property maintenance.
Suffice to say that these triple-net deals appear to be the perfect investment for the property owner since there is no management responsibility that is involved and therefore this is the best place to put their extra money with no headache and better profitability. Property owners are assured on a long-term lease since the tenants that they get are only those that have satisfied the qualifications required. This then also means having a stable net income and a unique measure to bypass taxes and insurance to shelter their leased real estate investment.
Tenants have a higher risk in this arrangement since the property owner is favored more than the tenant in this arrangement. This, however, is not the case for some retail and industrial rentals for many reasons which we will see below.
One reason is that retail and industrial rentals have more control of the property, so if your need plumbing system installation or roof repairs, you don’t have to ask the property owner for approval. The tenant has the power to hire anyone when it wants to either install or repair various fixtures that it deems appropriate for their present need. Of course, without violating its original novelty like putting substandard roofing system or anything that is critical to its long time serviceability. If the tenant wants to make changes in the property, he can do so without the control of the owner of the property. The lease, however, moderates this agreement which was signed by both parties prior to occupancy.
One of the biggest advantages of a triple net lease is that it usually has lower rents compared to gross rents. Since they are responsible for operational expenses, the low rents are able to sort of balance the equation which is typical of retail and industrial rentals.
Before the signing of the contract for this Triple Net Gateway lease, the tenants should have identified the risk factors so that it needs quality risk management and this means that they must be cautious when negotiating caps. You maximum liability amount is included in this which is on top of the basic rent amount that you pay each year. No matter how well or how poorly your business goes during the lease term, you are liable for the extra expenses for the leased property. When carried out correctly you will see that a triple net lease will not only benefit the property owner, it will also benefit the tenant.