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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.
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
Sara S.
With over ten years of intellectual property experience, I’m happy to work on your contractual matter. I am very diligent and enjoy meeting tight deadlines. Drafting memoranda, business transactional documents, termination notices, cease and desist letters, licenses and letter agreements are all in my wheelhouse! Working in a variety of fields, from construction to pharmaceutical, I enjoy resolving any disputes that come across my desk.
July 8, 2023
Rob D.
Attorney with 10 years experience focusing on corporate transactions and formations, real estate, and estate planning.
July 8, 2023
Christi H.
I have been practicing law for 18 years. I have worked in a mid-size firm environment where I was named a partner in 2014. In 2016, I left to start my own practice and work part-time. I handle most all corporate and transactional work and serve has outside general counsel for a number of companies
July 11, 2023
Kennedy W.
Graduated from Washburn University School of Law with certificates in Tax Law and Business Transactions. Served as a specialized tax advisor and business consultant to clients across the nation over the last 8 years. I have practiced law since 2019, specializing in entity formations, contract drafting, contract review, contract disputes, business transactions, demand letters, legal research, and general business consulting.
July 31, 2023
Matt T.
Matt is a licensed attorney based out of Dallas, Texas. Despite having recently graduated, Matt has been immersed in the world of Corporate law throughout law school and beyond. As a result, he has benefitted from the unique and advantageous position of experiencing and working on a wide array of matters, such as reviewing, drafting and negotiating contracts, overseeing regulatory compliance, business formation, risk management, and much more. Contact Matt today for a free consultation!
July 14, 2023
Penny R.
I have practiced law for more than 35 years in the State of Texas. I am proud of the relationships I have formed with my clients and the high level of legal advice I have provided over these many years. I am responsive and will promptly address your particular situation. For 35 years I have counseled individuals, partnerships and corporations with regard to business formation, real estate transactions and issues, employer/employee relationships, contracts, estate planning and asset protection. I am licensed to practice law in all state courts in Texas and all federal courts. I have represented plaintiffs and defendants throughout the state in cases ranging from contract disputes to injury claims. I have worked with every type of business you can imagine from individuals to "mom and pop" businesses and businesses with assets of more than $10,000,000. My clients' businesses range from large construction contractors, investment companies, oil and gas companies, and commercial landlords, to name a few.
July 14, 2023
Landra P.
I have been practicing law for 18 years. I own a law firm, but I prefer to work as a contract attorney. I have for the last five years, worked as either a contract attorney or a document review attorney.
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