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Understanding a triple-net lease

A triple-net lease is a commercial real estate lease. In this lease agreement, the tenant pays for three important expenses in addition to the rent. These expenses include property taxes, insurance and maintenance costs.

This kind of lease is often used for properties like office buildings, shopping centers and industrial parks.

How a triple-net lease works

In a triple-net lease, the tenant takes on more financial responsibility.  The taxes the tenant pays are the same ones that property owners usually pay to local governments. The tenant pays for insurance that covers the building against damages from things like fires, storms or vandalism. Maintenance costs include fixing things like the roof, plumbing and electrical systems. According to 1031 Crowd Funding, LLC, net leases generally have a term of between three and 10 years.

Benefits for landlords

Landlords like triple-net leases because they reduce their financial burden. The landlord does not have to worry about the costs the tenant covers. This means the landlord can have a more predictable income. The landlord also avoids the hassle of managing the property’s upkeep. This can be especially helpful for landlords who own multiple properties.

Benefits for tenants

Tenants can also benefit from a triple-net lease. One advantage is that these leases often come with lower base rents. Another benefit is greater control over the property. Since tenants handle maintenance, they can ensure the property stays in good condition. This can be particularly important for businesses that rely on a well-maintained space to attract customers.

Potential drawbacks

Despite the benefits, there are some potential drawbacks to consider. For tenants, taking on property taxes, insurance and maintenance costs can be expensive. For landlords, while the income might be more predictable, they still need to find reliable tenants. If a tenant cannot pay their bills, the landlord might have to cover these expenses.

When entering into a commercial lease, a triple-net is worth considering.