Responsibilities in a Triple Net Lease

In commercial real estate, the triple net lease can be one of the most unique yet helpful options for the landlord and the tenant.

For example, rather than paying the maximum rent, the tenant takes on additional responsibilities such as paying property taxes, paying for insurance, and maintaining the premises.

With triple net leases, it’s not just about occupying the space; it’s about collaborating on the upkeep.

This article is on the responsibilities of a triple net lease, and it will break down the jobs for both the person renting and the one who owns the place, showing how this kind of lease makes everyone pitch in.

Landlord Responsibilities

With a triple-net lease, the landlord still has property responsibilities, including the safety of the structure and wiring, as well as ownership costs. Let’s take a look at them.

Structural Maintenance

Landlords in a triple-net lease take on the crucial responsibility of structural maintenance.

Significant repairs necessary for the overall well-being of the building, ranging from the integrity of the roof to the stability of the foundation, the internal wiring, and the durability of exterior walls, are part of the Landlord’s remit.

By addressing the upkeep of these significant building components, commercial landlords contribute to the property’s longevity and the safety of its occupants and ensure an environment that is secure and well-maintained.

Property Ownership Costs

In a triple net lease (NNN), the tenant pays the base rent and operating expenses, including property taxes, insurance, and maintenance costs.

The landlord, however, still incurs certain ownership costs associated with the property, including the following:

Mortgage Payments

If the landlord has a mortgage, they are responsible for making regular mortgage payments. The tenant’s lease payments should ideally cover or contribute to these costs.

Property Management and Compliance

Landlords are entrusted with the overarching task of property management and ensuring compliance with relevant codes and regulations. This involves overseeing the general management of the property, coordinating maintenance, and ensuring adherence to building codes.

Landlords may hire property management companies to handle day-to-day operations, tenant relations, and maintenance. The landlord typically bears the cost of these services.

Legal and Accounting Fees

Landlords may incur costs related to legal and accounting services, especially in the case of lease negotiations, property transactions, or other legal matters.

Capital Expenditures

Landlords are generally responsible for major capital expenditures, such as replacing the roof and HVAC systems or making significant structural improvements to the property.

Vacancy Costs

If the property is vacant, the landlord may have to cover the costs of finding a new tenant, such as advertising, tenant screening, and potential improvements to attract new tenants.

Tenant Responsibilities

As mentioned above, tenants shoulder some financial responsibilities in a triple-net lease in return for rent lower than market value.

Base rent payment forms the foundation, in addition to the obligation to cover property taxes, ensuring the landlord is relieved of this fiscal duty.

Insurance coverage, including property and liability insurance can carry with with a large tenant like with a Walmart NNN property, or a Costco, 7-Eleven, Sunoco, and more.

Operational Duties

Tenants assume operational duties that extend beyond mere occupancy. For example, to ensure a well-maintained common area, i.e., tenants contribute to shared-use area maintenance (CAM) expenses, such as pressure washing the building, utility bills, and lawn care.

Some leases may require tenants to cover utility costs, promoting efficiency and responsible resource usage. Furthermore, tenants take charge of day-to-day repairs and maintenance within their leased space, fostering a proactive approach to the property’s upkeep.

Compliance and Legal Responsibilities

Tenants are responsible for adhering to laws and regulations governing the use and occupancy of the leased premises, For example, compliance with building codes, zoning regulations, and any other legal requirements.

With this action, tenants contribute to the property’s overall legal and regulatory conformity, aligning their activities with established guidelines.

Additional Contributions

Beyond the core financial and operational responsibilities, tenants may be required to contribute to additional operating expenses to ensure the smooth functioning of the property.

Therefore, before entering into any lease agreement, tenants, in particular, should carefully review the terms to understand who is responsible for which costs and expenses. Consulting with legal and financial professionals is advisable to understand the obligations outlined in the lease clearly.

These operating expenses can encompass property management fees, administrative costs, and other essential components of property operation. Tenants may also share in additional costs as stipulated in the lease agreement, fostering a cooperative financial relationship between landlords and tenants.

Conclusion

The dynamics of a triple net lease create a unique synergy between tenants and landlords, distributing responsibilities in a way that goes beyond conventional leasing arrangements.

Triple net leases may have longer terms than other leases because they provide more stability for both parties. Longer-term leases can offer landlords a predictable income stream, while tenants may benefit from locking in favorable lease terms for an extended period.

Tenants actively engage in financial and operational aspects, fostering a shared commitment to the property’s well-being far more so than with single or double net leases.

With its intricacies, the triple net lease model encourages teamwork and a cooperative approach to managing commercial real estate.