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The basics you must know about a Triple Net Lease

Triple Net Lease, also known as NNN lease, is a commercial real estate lease in which the Tenant is responsible for paying for all or some of the property’s Operating Expenses or sometimes called, Common Area Maintenance. These expenses can include property taxes, insurance, maintenance for common areas costs. In a Triple Net lease, the Tenant not only pays rent but also assumes financial responsibility for the upkeep and maintenance of the property. This type of lease is common in commercial real estate, particularly in retail and warehouse spaces and less likely to come across in office space. 

Benefits of Triple Net Leases For Landlords

Landlords can easily project their income stream, as the Tenant is responsible for the expenses associated with the property. There can be years when Real Estate Taxes and Insurance increase, those increased amounts can be passed directly to the Tenants.  Landlords can use this predictable income stream to secure financing for additional real estate investments or to reinvest in the property itself. Tenants being responsible for maintaining the property, Landlords can minimize their involvement in the day-to-day management of the property.

Disadvantages of Triple Net Leases For Landlords

If the Tenant fails to pay for expenses such as property taxes or insurance, the Landlord may have to cover those costs, leading to financial losses. Furthermore, if the Tenant is responsible for maintenance, the Landlord may not be aware of issues that arise, leading to potential property damage that could reduce the property’s value.

Benefits of Triple Net Leases For Tenants

Triple Net leases can provide more control over the property and potentially lower costs since they are responsible for maintenance and repairs by choosing which vendors to use or update themselves. Additionally, since Tenants have more control over the property’s upkeep, they can customize the space to fit their specific needs. This can be particularly advantageous for businesses with unique requirements, such as medical offices or laboratories.

Disadvantages of Triple Net Leases For Tenants

Tenants should also be aware of the potential downsides of Triple Net leases. If the property requires significant maintenance or repairs, the Tenant may be responsible for substantial expenses. Property Taxes and Insurance can fluctuate and subsequently may face higher costs if Property values or Insurance rates increase.

Triple Net leases can benefit Landlords and Tenants. Landlords can secure a stable income stream and minimize their involvement in property management, while Tenants can have more control over the property and potentially lower costs. It is essential for both parties to understand the potential downsides of triple net leases, such as financial risks and increased expenses. As with any real estate transaction, it is crucial to carefully review and negotiate the lease terms to ensure a mutually beneficial arrangement.

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The Most Common Types of Commercial Real Estate Leases: Full Service, Modified Gross and Triple Net

In commercial real estate, there are typically three different types of leases structures. Knowing the characteristics ensure you know what to financially expect and budget for with your monthly office rent. In Tampa Bay, a particular type of lease structure parallels with a different type of space and location.

Two main items to consider, location and type of buildings.

For example, if you are leasing office space in the Tampa in a large building in Westshore or Downtown Tampa, nine times out of ten you have a Full Service office lease. Compared to if you are leasing office space in Carrollwood you would come across more Modified Gross or Full Services leases.

The type of building can also play a role but there are exceptions. If you relocate your office to a different type of building (from a multi-story office building to a single-story building) the kind of lease structure can vary.

What is the Difference between Full Service (FS), Modified Gross (MG) and Triple Net (NNN) Leases?

In commercial leases there are three typical types of leases that can be negotiated between a tenant and a landlord: “Full Service Gross” (FSG), “Modified Gross” (MG) and “Triple Net” (NNN). In some cities, one type of lease may be more prevalent than the others. In general, full service usually applies to a multiple story office building, MG single story office space or warehouse and NNN applies to retail space. Usually, the differences between the three lease types relates to how (and by whom) the “triple net” costs (taxes, insurance and common area maintenance (CAM)) are dealt with.

Full Service:

In an FS lease, the triple net costs and any additional costs such as utilities and janitorial, but excluding the costs of phone/data, are bundled into the base rent. FSG leases provide the tenant with the highest level of certainty regarding their complete occupancy cost; however, the downside is that the annual escalator will increase the base rate of the lease regardless of any real fluctuations in the operating expenses.

Modified Gross:

An MG lease typically includes all the triple net costs but excludes utilities and/or janitorial service. An MG lease has similar advantages/disadvantages to a FSG lease; i.e. taxes, insurance and CAM are typically bundled into the base lease rate. A unique disadvantage is that the tenant will have two additional variable costs to consider: utilities and janitorial. It is important to note that a modified gross lease can be “modified” to include or exclude any individual expense within the base rate “bundle.”

Triple Net:

In an NNN lease, the tenant is responsible for their pro-rated share of the “triple net costs”: taxes, insurance and CAM; in addition, the tenant is also responsible for utilities and janitorial. The primary advantage to an NNN lease is transparency; all of the building’s operating costs are available for the tenant’s review. The primary disadvantage is that the triple net costs are not guaranteed in the Lease and are subject to increase or decrease, increasing is much more typical.

 

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Leasing Warehouse Space: 5 Helpful Tips

For anyone who is looking for leasing warehouse space for the first time, it can be intimidating if you don’t know what to look for – or don’t want to find – in a space that is suitable for your company’s needs. Generally speaking, a warehouse is typically a large single-story building and its primary use is for warehousing and distributing the goods of a business.

Our five tips below will help you choose the perfect warehouse space in Tampa Bay for your business.
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Triple Net (NNN) Lease Is it Right for You?

In a triple net lease (or NNN lease), the Tenant is responsible for their pro-rated share of the “triple net costs”: taxes, insurance and common area maintenance (CAM). In addition, the Tenant is also responsible for utilities and janitorial. Why then, you may be asking, would any potential Tenants consider a triple net lease agreement as their ideal setting?

Agreeing to a NNN lease does have several advantages for the Tenant. One of the primary advantages to an NNN lease is transparency – all of the building’s operating costs are available for the Tenant’s review upfront. There are no surprises, mysteries or guesswork here. A Tenant will be given a great rundown of what to anticipate before ever putting a pen to paper, making it very tactile and also incredibly beneficial for business budgeting purposes.
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