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wiseGEEK: What is a Triple Net Lease?

A triple net lease is a type of commercial leasing agreement in which the lessee pays taxes, insurance, and maintenance in addition to the rent. There are advantages and disadvantages to this type of lease for both parties, and individuals who are considering one should research the situation carefully before making a decision. The length of a lease can vary, but many last for at least 50 years.

There are many different commercial leasing options. In a gross lease. the lessee pays rent while the landlord takes care of everything else. Most people who rent their homes are familiar with this type of lease, as it is commonly used for residential properties. In a double net lease, the landlord assumes some of the costs of property upkeep. Landlords commonly cover parking, heating and cooling systems, and the structural integrity of the building.

The triple net lease is sometimes called a true net lease, because the landlord usually has no responsibilities related to building upkeep. For this reason, many commercial landlords favor this option. The building can generate a high level of income while the tenant keeps it in good condition, generally making improvements as well. The tenant has many of the advantages of ownership, including control over the property, without the substantial capital investment that a new acquisition represents.

This type of lease can be risky for a landlord, however, since some tenants may not be able to pay fees, or may allow the building to fall into disrepair. In extreme cases, a tenant may deliberately damage a building to collect insurance money. For this reason, some leases include a reserve fund into which the tenant makes regular payments that can be used to cover essential repairs in the event of emergency.

A triple net lease is individualized to the tenant and lessor. and the terms of the contract may contain restrictions and stipulations to protect both parties. In some instances, for example, the terms of the lease may include a cap on total property taxes to be paid by the tenant. If the property taxes rise above a certain amount, the landlord will be responsible for covering the remainder. Protections may also be built in to cope with rising insurance rates or unexpected maintenance costs.

When considering lease options as a landlord or tenant, the full terms of the lease should always be read before committing. In the case of a triple net lease, both parties should make sure that all the terms are clear and agreed upon. Experts often recommend that both parties consult a lawyer who specializes in real estate before signing any agreement.

Category: Credit

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