Commercial property rentals are confusing if you do not know what to expect or know what standard rental terms are used. From single net to triple net, here's what you need to know.
What is a NNN lease?
NNN leases are also known as 'triple net' leases or net-net-net leases. They are commonly used for office buildings, retail spaces, and industrial properties.
A NNN lease is a commercial lease in which the tenant is responsible for paying all of the operating expenses associated with the commercial property for rent, including taxes, insurance, and maintenance costs.
What are the benefits of a NNN lease for a tenant?
There are a few key benefits of a NNN lease for tenants, including:
- Control. You have more control over your operating expenses with a NNN lease. This can be helpful if you want to keep a close eye on your budget or if you anticipate your costs are going to change in the future.
- Rent increases. Lease terms on commercial property for rent tend to be longer than residential leases, so you may have the same rental rate for several years. Conversely, with some NNN leases your base rent may increase each year, giving you some predictability in your budget.
- Lower rent. You may be able to negotiate a lower rent rate with a NNN lease since you're taking on more responsibility for the property.
- Potential tax deductions. The IRS considers some of the operating expenses associated with a NNN lease to be business expenses, which means they may be tax-deductible. Consult with your accountant to see if you qualify for any deductions.
What are the drawbacks of a NNN lease for a tenant?
There are also some potential drawbacks to be aware of with a NNN lease, including:
- Higher upfront costs. You may have to pay more in rent upfront with a NNN lease since you're responsible for all of the operating expenses associated with the property.
- Less flexibility. Once you sign a NNN lease, you're committed to the property for the length of the lease term. This can be problematic if your business needs to change or you need to move for any reason.
- Risk. If the property you're leasing is in poor condition or needs significant repairs, you may be stuck paying for them yourself.
Before you sign a NNN lease on commercial property for rent, be sure to understand all of the terms and conditions involved. This will help you determine if this type of lease is right for your business.
Is NNN the only option for a commercial property for rent?
While a triple net is the most common option, commercial properties for rent are also available as single net and double net leases. With a single net lease, the tenant pays rent as well as property taxes, and with a double net lease, the tenant pays rent, property taxes, and insurance.
Commercial property rentals can be confusing, but understanding the different types of leases available can help you make a more informed decision. If you're still unsure which type of lease is right for you and your commercial property rental, consult with an experienced real estate agent or lawyer.