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Need help with a NNN Commercial Lease?
An NNN commercial lease, or triple net lease, is a kind of lease contract where the lessee is accountable for settling all expenditures for the rented property. This includes insurance, property taxes, and maintenance. This blog post will cover the fundamentals of NNN commercial leases and why they are becoming prevalent among tenants and commercial property owners.
Key Aspects of NNN Commercial Lease
A NNN commercial lease refers to a lease contract where the lessee is accountable for settling all expenditures associated with the property. It indicates that the owner is not liable for any of these expenditures, and the renter is solely answerable. In addition, the phrase “NNN” stands for “triple net”, which are the three expenditures the lessee is accountable for settling. Some of the key aspects of an NNN commercial lease:
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Lessor Accountability
The lessor is generally accountable for the structural elements of the rental facility. The lessor may be accountable for some upkeep, as agreed upon in the NNN lease.
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Lessee Accountability
The lessee has complete authority over the rental property during the lease duration. Tenants are accountable for settling insurance, property taxes, and maintenance expenses in addition to rent.
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Length of NNN Lease
Triple net or NNN leases are generally more extended than conventional leases, varying from 10-25 years
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Property Usage
Usage of the rental property is limited to the specific use summarized in the lease contract
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Rental Structure
Rent in NNN commercial lease is generally higher than in a conventional lease to compensate for the extra obligations of the lessee.
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Renewal Alternatives
Renewal choices may be incorporated in the lease contract, allowing the lessee to rent the property after the primary lease term has been completed.
What Makes NNN Commercial Lease So Popular?
NNN commercial leases are becoming exceptionally prevalent for numerous reasons. Initially, they deliver stability for the lessor, as they understand that the lessees will take care of and settle the expenditures associated with the commercial rental property. It lets the landlord concentrate on other facets of their business and lowers their accountabilities concerning the rental property.
Secondly, NNN or triple net commercial leases can deliver a higher level of authority for the lessee, as they can regulate and handle the expenditures associated with the commercial property. It can lead to cost savings for the lessee, as they can negotiate more profitable property taxes and insurance rates. Besides, the renter can make any required modifications or improvements to the property, enhancing its worth and attracting more clients.
Ultimately, NNN commercial leases deliver more adaptability for the lessor and the lessee. The property owner is not accountable for any expenditures associated with the commercial property, which implies they are free to invest their resources and time into other business areas. The tenant is also free to make any necessary improvements or upgrades to the property, which can improve its value and attract more customers.
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NNN Or Triple Net Commercial Lease Tips
You must evaluate several factors when negotiating a NNN or Triple net commercial lease. Primarily, it is necessary to thoughtfully examine the commercial lease contract and comprehend all the obligations and responsibilities associated with the rental property. The NNN commercial property lease should determine the expenditures the lessee is accountable for and the amount they must pay.
Furthermore, it is also vital to comprehend the regional real estate domain, as this can influence the expense of insurance and property taxes. The lessee should analyze and comprehend the average cost of these expenditures, as this can assist them in negotiating a more favorable commercial lease contract.
Ultimately, the lessee should assess their long-term objectives and decide whether a NNN commercial lease is the most suitable option. For instance, if the lessee plans to make significant modifications to the property, they may want to negotiate a commercial lease contract that provides them more authority over the expenditures associated with the rental property.
Triple Net Lease Provisions
Commercial real estate investors prefer net leases since they absolve lessors of some of the threats and expenditures of property ownership. Moreover, landlords obtain the least risk in a triple-net or NNN commercial lease since their lessees are accountable for maintenance, insurance, and taxes.
Nevertheless, most NNN or triple net commercial leases are slightly more complicated than this simple contract. A typical triple-net or NNN lease can comprise many distinct provisions and stipulations. Below are a few common clauses of the NNN commercial lease.
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Lease Term
Some NNN commercial leases comprise a termination provision that defines the duration in which the lease is functional. This provision allows lessees to assess the viability of the commercial area relative to their expected development.
It also safeguards investors from lessees who don't keep the property as agreeably as expected. A renewal clause can let lessees continue the commercial lease after the existing term lapses. And the most prevalent NNN commercial lease terms vary between 10 and 15 years.
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Rent Clause
Rent should always remain part of any leasing contract, but a rent provision can help change this prerequisite. For example, a rent clause can comprise automatic rent changes (e.g., a rent decrease/increase after one year).
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Property Use Provision
A property use clause specifies parameters for the lessee's use of the commercial area. In some circumstances, this may be impacted by zoning limitations in your area, though owners can stipulate the type of enterprise activities for which the establishment may be used.
NNN Commercial Leases and Financing
As in any commercial leasing arrangement, credit matters, but owners must ensure that lessees can handle the property's financial obligations for triple net leases. Generally, you'll want to rent the property to "credit lessees," which refers to those with a healthy credit record and a high possibility of making routine, timely payments.
In addition, these credit ratings indicate the tenant's capability to fulfill their financial responsibilities. Checking the credit rating is essential because leasing to non-credit lessees carries an improved risk that you won't get rent payments on time or the lessee will not maintain the commercial property as decided.
Key Terms
- Rent: The sum of money settled by the lessee to the owner for the use of a rental property.
- Security Deposit: A sum of money offered by the lessee to the owner at the beginning of a lease as a form of safety.
- Term: The duration for which a lease contract is in effect.
- Default: A condition in which the lessor or the lessee fails to meet their responsibilities under the lease contract.
- Renewal: The procedure of expanding the duration of a lease contract after it has expired.
Conclusion
Overall, NNN commercial leases are becoming prevalent among commercial property landlords and lessees, as they deliver authority for the lessee, stability for the owner, and flexibility for both parties. Moreover, when negotiating a NNN or triple net commercial lease, it is necessary to carefully review the lease agreement and hire our expert attorneys at ContractsCounsel to understand the regional real estate market and consider one's long-term objectives. Regarding these considerations, a NNN commercial lease agreement can be a useful alternative for tenants and lessors.
Meet some of our NNN Commercial Lease Lawyers
Terence B.
Terry Brennan is an experienced corporate, intellectual property and emerging company transactions attorney who has been a partner at two national Wall Street law firms and a trusted corporate counsel. He focuses on providing practical, cost-efficient and creative legal advice to entrepreneurs, established enterprises and investors for business, corporate finance, intellectual property and technology transactions. As a partner at prominent law firms, Terry's work centered around financing, mergers and acquisitions, joint ventures, securities transactions, outsourcing and structuring of business entities to protect, license, finance and commercialize technology, manufacturing, digital media, intellectual property, entertainment and financial assets. As the General Counsel of IBAX Healthcare Systems, Terry was responsible for all legal and related business matters including health information systems licensing agreements, merger and acquisitions, product development and regulatory issues, contract administration, and litigation. Terry is a graduate of the Georgetown University Law Center, where he was an Editor of the law review. He is active in a number of economic development, entrepreneurial accelerators, veterans and civic organizations in Florida and New York.
Rosario A.
I'm a Washington-licensed lawyer specializing in trademark practice and with an extensive trademark education and academic background. I currently work with domestic and international businesses seeking trademark protection in the U.S. by conducting trademark searches, providing legal advice, submitting USPTO applications, and preparing responses to office actions. I'm passionate about trademark law and always looking forward to helping small and medium businesses promote their value by having a registered federal trademark. If you have questions or concerns about trademark/copyright/IP licensing and require legal advice, feel free to contact me so we can have a first chat.
Ashley H.
I have 10 years experience providing general counsel, in the form practical and timely legal advice, under strict deadlines to individuals and various business unit stakeholders, balancing commercial needs with legal concerns at large corporations and start-ups. I am skilled at reviewing, analyzing, drafting and negotiating commercial and government contracts globally for the procurement and sale of services and goods. I also help clients ensure compliance with regulations (including data privacy), laws and contractual obligations and protect, enforce and exploit intellectual property rights and support in the development of IP strategy. I am a Certified Information Privacy Professional/United States (CIPP/US) licensed by the IAPP - International Association of Privacy Professionals.
Diane D.
I am the Founder and Managing Attorney of DMD Law, PA. and have 20 years' experience. I also am a business-oriented, proactive, and problem-solving corporate lawyer with in-house experience. My firm's practice focuses on ensuring the legalities of commercial transactions and contracts. I am adept at reviewing, drafting, negotiating and generally overseeing policies, procedures, handbooks, corporate documents, and contracts. I have a proven track record of leading domestic and international companies by ensuring they are functioning in complete compliance with local, federal and international law. The firm's goal is to simplify the law and provide clients with the confidence and information necessary to make their decisions.
August 18, 2020
William F.
William L Foster has been practicing law since 2006 as an attorney associate for a large litigation firm in Denver, Colorado. His experience includes drafting business contracts, organizational filings, and settlement agreements.
August 24, 2020
Jeffrey P.
Mr. Pomeranz serves as the principal of Pomeranz Law PLLC, a boutique law firm representing clients across myriad industries and verticals. Before founding the firm, Mr. Pomeranz served as Senior Vice President, Legal & Compliance and General Counsel of Mortgage Connect, LP in 2017. Mr. Pomeranz also served as Counsel, Transactions for Altisource Portfolio Solutions S.A. (NASDAQ: ASPS) beginning in 2013, and was based in the company’s C-Suite in Luxembourg City, Luxembourg. Mr. Pomeranz began his career with Mainline Information Systems, Inc. as an in-house attorney.
August 25, 2020
Rinky P.
Rinky S. Parwani began her career practicing law in Beverly Hills, California handling high profile complex litigation and entertainment law matters. Later, her practice turned transactional to Lake Tahoe, California with a focus on business startups, trademarks, real estate resort development and government law. After leaving California, she also served as in-house counsel for a major lending corporation headquartered in Des Moines, Iowa as well as a Senior Vice President of Compliance for a fortune 500 mortgage operation in Dallas, Texas prior to opening Parwani Law, P.A. in Tampa, Florida. She has represented various sophisticated individual, government and corporate clients and counseled in a variety of litigation and corporate matters throughout her career. Ms. Parwani also has prior experience with state and federal consumer lending laws for unsecured credit cards, revolving credit, secured loans, retail credit, sales finance and mortgage loans. She also has served as a special magistrate and legal counsel for numerous Florida County Value Adjustment Boards. Her practice varies significantly from unique federal and state litigation cases to transactional matters. Born and raised in Des Moines, Iowa, Ms. Parwani worked in private accounting for several years prior to law school. Her background includes a Certified Public Accountant (CPA) certificate from Iowa (currently the license is inactive) and a Certified Management Accountant (CMA) designation (currently the designation is inactive). Ms. Parwani or the firm is currently a member of the following organizations: Hillsborough County Bar Association, American Bar Association, Tampa Bay Bankruptcy Bar Association, National Association of Consumer Bankruptcy Attorneys, and the American Immigration Lawyers Association. She is a Fellow of the American Bar Association. Ms. Parwani is a frequent volunteer for Fox Channel 13 Tampa Bay Ask-A-Lawyer. She has published an article entitled "Advising Your Client in Foreclosure" in the Stetson Law Review, Volume 41, No. 3, Spring 2012 Foreclosure Symposium Edition. She is a frequent continuing legal education speaker and has also taught bankruptcy seminars for the American Bar Association and Amstar Litigation. She was commissioned by the Governor of Kentucky as a Kentucky Colonel. In addition, she teaches Immigration Law, Bankruptcy Law and Legal Research and Writing as an adjunct faculty instructor at the Hillsborough Community College Ybor campus in the paralegal studies program.
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