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What is an Addendum to a Lease?
An addendum to a lease is a separate legal document added by the landlord to the original lease agreement between the landlord and a tenant. Lease addenda are used to provide additional information that the original lease does not cover. Examples of addendums may include pet addendum, smoking addendum, and lead paint disclosures. Some addenda, such as the lead paint disclosure, are required by law to be added to lease agreements.
How to Write an Addendum to a Lease
An addendum to a lease can help address unique issues specific to a property. If you choose to create your own addendum, there are some basic rules you can follow.
- An Addendum must include basic elements of any lease agreement between a landlord and tenant. A lease agreement is a legal contract between a user and an owner for the use on asset, generally a real estate property. An addendum can be used for any kind of lease, including a land lease, commercial lease, residential real estate lease, office space lease , etc.
- In an addendum to a lease, you will need to add the dates , names and addresses of all parties involved in the original lease agreement.
- Each addendum should contain a specific and separate issue.
- Each title should contain “addendum” after the issue being discussed.
- An addendum is generally 1-2 pages long .
- All addenda need to be signed by both parties before they are legally enforceable.
Does an addendum supersede a lease?
The addendum is a part of the lease agreement. Therefore, it does not stand on its own. However, the addendum should make references to the lease, contain the same date and name of parties as in the original lease agreement. If the addendum states that its addition will modify an existing clause in the original lease agreement, then one can make a case for it superseding the original lease contract. The addendum should clearly state if it adds to or modifies any part of the original lease agreement.
Here an article on an addendum to a lease.
Types of Commercial Leases
There are multiple types of leases to consider, but we will highlight three types of commercial leases below:
- Single Net Lease: A single net lease, or net lease , only requires the tenant to pay property taxes in addition to rent. In a single net lease, the tenant bears the minimal amount of risk. Expenses other than property tax and rent, such as insurance, maintenance, utilities and repairs are paid by the landlord. The landlord also is responsible for any repairs or maintenance issues in the property during the lease. Tenants end up paying slightly less rent under a single net lease due to the added property tax cost.
- Double Net Lease: A double net lease requires the tenant to pay property taxes as well as insurance premiums in addition to rent. In a double net lease, the landlord bears all maintenance costs. Tenants end up paying a lower base rent because of additional expenses involved. This type of lease is generally used in large commercial rental spaces where tenants might rent areas with varying square footage. The landlord assigns taxes and insurance costs to tenants proportionally, depending on the size of square footage being leased per tenant.
- Triple Net Lease: A tripe net lease , or a NNN lease, requires the tenant to pay property taxes, rent, insurance premiums as well as maintenance costs. A triple net lease is the least risky for any landlord. The tenant is also responsible for any costs, such as structural maintenance and repairs. Therefore, when maintenance costs are high, tenants can try to get out of their leases. As a result, often under tripe net leases, landlords attempt to use a bondable net lease–which cannot be terminated before its expiration. Triple net leases have their own pros and cons.
Image via Pexels by Max Vakhtbovych
Pros and Cons of Triple Net Leases
A triple net lease provides the most security for a landlord. This can have its own set of pros:
- Long term occupancy: Triple net lease agreements generally offer long-term occupancy thus providing security for the landlords.
- Low-risk investment: Since the tenant is responsible for all costs associated with the property, a triple net lease agreement is a low-risk investment for the landlord or investor.
- Consistent Income Stream: Long-term occupancy structure of a triple lease agreement also makes it a consistent income stream for the landlord.
- Build Equity: The low-risk nature of a triple net lease agreement makes it a good option to be added to investment portfolios to build equity.
- Reduced landlord duties: A triple net lease reduces the landlord’s responsibilities as the tenant is responsible for most costs and maintenance issues associated with the property.
- Tax benefits: Since tenants pay property taxes under a triple net lease, they can use these expenses as their business expenses to get tax benefits.
This doesn’t mean that tripe net leases do not pose any problems to landlords. Here are some cons of triple net leases:
- Earning caps: Since triple net lease agreements require long term commitment, they generally lock in the rent value with no option to increase rent if property value increases.
- Vacancy risks and rollover costs: There is a risk of default by the tenant and in that case investors would incur losses and will have to cover all property costs.
- Assuming property expenses: For the tenants, the responsibility to pay all property costs and maintenance costs can be a financial burden.
- Tax liabilities: Tenants responsible for property taxes also become responsible for associated liabilities such as late or incorrect tax remittance.
Here more on different types of leases .
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