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What is a Single Net Lease?
Single net lease (SNN or N lease) is a legitimate, modest and viable option for building wealth in commercial real estate. The "N" in this lease agreement stands for "Net," which symbolizes the property tax that the tenant pays plus other operating costs. In other terms, tenants pay for property taxes and utility costs.
On the other hand, landlords cater for another addendum to lease expenses like insurance, repair, and maintenance costs. For ages, most individuals presumed a single net lease as a risky commercial lease agreement.
Years down the line and with a more informed market audience, things have changed significantly recently. As a result, experts now aggressively champion this lease structure due to its plethora of benefits.
All in all, SNN is an agreement between multitenant building owners and single tenants that makes the latter responsible for insurance, property taxes, maintenance, and common area rent. As a result, landlords perceive SNN as a less perilous investment project because it cuts costs in maintenance charges.
The basic concept behind a single net lease is that tenants only pay a percentage lease to share the building's common expenses. In short, you don't pay for any of the building's fixed costs as they get covered by your property manager, leasing agent, and subtenant. This is a total contrast to a passthrough lease where additional expenses like insurance and repairs shift from landlords to tenants.
Key Terms in a Single Net Lease
Each industry has its share of terms that expedite or simply the running process. The real estate industry is not left behind on this, especially during the assignment of leases. Binding industry terms in a commercial lease include:
Rentable Square Feet
This is a common term used to define shared areas among several tenants in a building lease. It's all about the number of usable square feet in a property, including office space and common areas like hallways, restrooms, recreational, and staircases.
Usable Square Feet
Real estate experts use this office lease metric to describe square footage rented by a tenant. For example, the total space may encompass the storage area, closets, private restrooms, and other spots accessible by tenants.
Lease Term
Lease terms are an essential detail to decide on when making your single net lease agreement. It will influence many factors, like the amount of rent you can charge and how much time you'll have to find a new tenant.
Insurance Types
Since an office space holds a leading position in overall performance, reliable insurance options are critical in minimizing risks. Experts recommend viable policies like leasehold, property & liability, and business interruption.
Agreement Clauses
A practical assignment of lease should include an agreement clause to protect your assets from any potential liabilities that may occur due to the tenant's actions. Three essential clauses commonly found in a lease agreement are rent, term, and use.
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What Does a Single Net Lease Provide?
A single net lease is a form of a lease agreement that gives you the benefits of both a gross lease and a net lease. However, it is more fixed than a gross lease but less flexible than a net lease.
For some retail and other business owners, it provides a great way to structure ownership, use, and occupancy while improving tax benefits. Without any doubt, this provides a perfect balance of risk and reward.
Advantages of a Single Net Lease
A single net lease can dramatically simplify your business. In addition, it gives you more time for the work that matters, like marketing and sales. Here are other benefits associated with a single net lease .
Increased Cash Flow
Unknown to most people, a single net lease enables organizations and businesses to lower operational costs. In this legal agreement, tenants pay all applicable taxes, insurance, and maintenance for the rented space. This plan helps increase cash flow for the landlord and other investors in the long run.
Reduced Real Estate Tax Exposure
Landlords have a legal obligation to collect and pay real estate taxes on commercial properties. This approach has particular implications on how the landlord files his tax return and on certain taxpayers like Real Estate Investment Trusts (REITs). A single net lease can be a great way to lower taxable income for a landlord in such circumstances.
Flexibility
Nothing beats the flexibility associated with a single net lease. However, you can enhance the prowess of this lease agreement by including a Landlord's Deduction clause in the agreement. It allows a landlord to receive reimbursement for any costs incurred during or after the tenancy term. Moreover, it gives a tenant accounting transparency and financial liability protection.
Disadvantages of a Single Net Lease
While a single net lease does offer considerable cost savings to the owner and lessee, it also has some drawbacks in certain circumstances.
Time-consuming
Although SNN eliminates the process of sending leases, taking photos, and getting sign-offs from tenants, there is more to that. Keep in mind that single net leases require detailed planning for impressive results. Landlords and tenants in a hurry may opt for other alternatives like double or triple leases.
Costly
Taking on a single net lease might seem like you're getting the best of both worlds. Nonetheless, they can be more expensive in the long run than a regular lease. The reason is that with a single net lease, you end up paying for repairs and expenses that landlords would typically cover with a gross or triple net lease.
Challenge Calculating Monthly Profit
Due to irregular costs of building maintenance fees and insurance premiums, estimating monthly profits can be a huddle for most landlords. Still, this type of lease works perfectly for those with plenty of time and who are not concerned about regular ROI.
Single Net Lease vs. Gross Lease
In a gross lease, landlords cover approximated costs like utilities, insurance, repairs, and taxes. At the same time, the tenant forfeits a fixed percentage of rent. This is different from a modified gross lease, where a landlord and a tenant share responsibilities in paying for operating costs equally.
Tenants on a single net lease have the upper hand in such a scenario because the landlord pays for a considerable percentage of building expenses.
Single Net Lease vs. Double Net Lease
When signing a double net lease agreement (net-net or NN), tenants consent to cater for a couple of property expenses like insurance premiums, utilities, and taxes. This is contrary to a single net lease where a tenant pays for property taxes plus rent.
Single Net Lease vs. Triple Net Lease (NNN)
A triple Net Lease, also referred to as NNN or net-net-net, requires tenants to pay for repairs, maintenance, insurance, taxes, and rent. In the lease agreement, the landlord is in charge of most financial responsibilities affiliated with the property. Mainly, the landlord remains responsible for maintenance and insurance costs, unlike triple and double lease agreements.
Bottom Line
It is the dream of every commercial real estate investor to benefit from a significant ROI. Unfortunately, most property owners run from a single net lease because of its complexity, particularly when leasing office structures. Astute business owners can realize substantial savings and avoid several risks. It is vital to weigh through pros and cons before consenting to this type of lease structure.
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Meet some of our Single Net Lease Lawyers
Michael M.
www.linkedin/in/michaelbmiller I am an experienced contracts professional having practiced nearly 3 decades in the areas of corporate, mergers and acquisitions, technology, start-up, intellectual property, real estate, employment law as well as informal dispute resolution. I enjoy providing a cost effective, high quality, timely solution with patience and empathy regarding client needs. I graduated from NYU Law School and attended Rutgers College and the London School of Economics as an undergraduate. I have worked at top Wall Street firms, top regional firms and have long term experience in my own practice. I would welcome the opportunity to be of service to you as a trusted fiduciary. In 2022 I was the top ranked attorney on the Contract Counsel site based upon number of clients, quality of work and top reviews.
Laura B.
I received my undergraduate degree from Columbia University and my JD from UC Davis School of Law. I specialize in drafting, reviewing, and litigating contracts, general civil litigation, restraining orders, and family law. I have helped entrepreneurs form their business entities and grow their small businesses. This area of my practice has focused heavily on YouTubers, podcasters, and individuals creating unique online platforms. In the family law context, I have helped my clients petition for and obtain custody of their children and modify existing custody arrangements.
T. Phillip B.
Attorney creating plans and strategies to help individuals create, build, protect and pass on wealth.
Briana C.
Legal services cost too much, and are often of low quality. I have devoted my law practice to providing the best work at the most affordable price—in everything from defending small businesses against patent trolls to advising multinational corporations on regulatory compliance to steering couples through a divorce.
Jo Ann J.
Jo Ann has been practicing for over 20 years, working primarily with high growth companies from inception through exit and all points in between. She is skilled in Mergers & Acquisitions, Contractual Agreements (including founders agreements, voting agreements, licensing agreements, terms of service, privacy policies, stockholder agreements, operating agreements, equity incentive plans, employment agreements, vendor agreements and other commercial agreements), Corporate Governance and Due Diligence.
Meghan P.
I am a licensed attorney and a member of the California Bar. I graduated from the University of Dayton School of Law's Program in Law and Technology. I love IP, tech transfers, licensing, and how the internet and developing technology is changing the legal landscape. I've interned at both corporations and boutique firms, and I've taken extensive specialized classes in intellectual property and technology law.
Charlotte L.
I hold a B.S. in Accounting and a B.A. in Philosophy from Virginia Tech (2009). I received my J.D. from the University of Virginia School of Law in 2012. I am an associate member of the Virginia Bar and an active member of the DC bar. Currently, I am working as a self-employed legal consultant and attorney. Primarily my clients are start-up companies for which I perform various types of legal work, including negotiating and drafting settlement, preparing operating agreements and partnership agreements, assisting in moving companies to incorporate in new states and setting up companies to become registered in a state, assisting with employment matters, drafting non-disclosure agreements, assisting with private placement offerings, and researching issues on intellectual property, local regulations, privacy laws, corporate governance, and many other facets of the law, as the need arises. I have previously practiced as an attorney at a small DC securities law firm and worked at Deloitte Financial Advisory Services LLC. My work experience is dynamic and includes many short-term and long term experience that span across areas such as maintaining my own blog, freelance writing, and dog walking. My diverse background has provided me with a stong skill set that can be easily adapted for new areas of work and indicates my ability to quickly learn for a wide array of clients.
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