Commercial properties, like residential properties, have a lease that details how much the tenant or
lessee will pay in rent, how long the tenant has to rent the property, the rights and privileges of the tenant,
payments for taxes, insurance, and maintenance (also known as the “nets”), and rent increases. When
the lease agreement requires the tenant to pay taxes, insurance, and maintenance in addition to the rent,
it’s known as a triple net lease. A triple net lease might also be called a net-net-net lease or an NNN
lease.

Types of Leases

Generally, there are a few different types of leases:

       The gross lease, the landlord pays the cost of operating the property and sets the rent at a price
             that’s above the operating expense.

       The modified gross lease, the landlord passes some of the operating costs, like utilities, to the
             tenant.

       The single net lease, the tenant pays the property taxes and the rent. The landlord pays the
             other operating costs.

       The double net lease, the tenant pays the taxes, insurance, and the rent. The landlord pays the
             other operating costs.

       The triple net lease, the tenant pays the taxes, insurance, maintenance costs, and the rent.

       The bondable lease, the tenant pays all the costs associated with the upkeep of the building in
             addition to the rent.

Benefits of a Triple Net Lease

At first glance, it seems like only the landlord stands to gain from a triple net
lease since his monthly out-of-pocket expenses are reduced. But, tenants can
benefit too since the rent in a triple net lease is often lower than for other types
of leases. Since the landlord doesn’t have to shoulder the taxes, insurance,
and maintenance costs, he’s able to charge less for the use of the building.

Renters also tend to have more control over negotiating a triple net lease,
allowing them to ultimately have more control over the property.

Disadvantages of a Triple Net Lease

Tenants who hold triple net leases may have tax consequences if their
business suffers losses because of the lease. Passive income loss
limitations prevent real estate businesses from claiming rent losses as a
business loss unless the taxpayer uses the triple net leased property for at
least 750 and 50% of the taxpayer’s time is spent on the real estate business.

A triple net lease can be risky for the landlord. Tenants may not be able to
afford the complete costs of a triple net lease. Some tenants may not alert
the landlord when there is a repair that is beyond the tenant’s financial reach,
leaving the building severely damaged.

Negotiable Clauses in Triple Net Leases

Commercial leases are far more negotiable than residential leases, and
triple net leases are no exception. While you can negotiate virtually every
statement in the lease, here are some clauses that are commonly up for
discussion:

       The triple net lease might include a clause that states any expense
             over a certain amount will be paid by the tenant.

       The landlord uses the percentage of sales clause to collect a certain percentage of your sales
             when the tenant’s sales exceed a certain amount.

       Rent increases can be written out in the lease agreement. The agreement can include the
             amount and timing of each increase.

       Common area maintenance is typically charged in multitenant buildings like malls. It covers
             costs for things like landscaping and maintenance for the parking lot, restrooms, and hallways.

Some triple net leases have a reserve fund to which a portion of the tenant’s rent payments go. The
reserve fund is used on an emergency basis to pay for expenses the tenant cannot afford.

This article was submitted by Robert Valentine of Financial and Retirement Management.Robert Valentine is a well-known expert in the matters concerning investors. His articles on financial planning matters that concern investors have been published by several publications throughout the United States.