The Triple Net Lease – What is it and Who Pays those Costs?0

Posted by Thomas Miller, CCIM

lease-agreement-with-keysMany commercial lease rates are quoted as “triple net” rates, but it’s a foreign term to most tenants. Typically, not only do they not understand what triple net means, they have no idea how it impacts their lease negotiations. In general, a triple net lease refers to a lease agreement in which the tenant agrees to pay all of the property insurance, real estate taxes, common area maintenance, management fees and possibly additional costs associated with the premises being leased in addition to the base rent. In many instances, real estate agents will display both the base rent rates and the triple net estimates. Together, those combine to what is referred to as a gross rent rate.

In practice, while the tenant is responsible for paying all the triple net costs, the landlord actually pays them for the tenant and recovers their estimated costs monthly. Commonly at year-end, there is a reconciliation and any adjustments for over or underpayments are made at that time. In this way, the landlord assures that their asset is being protected and the landlord’s better purchasing power is passed along to the tenant.

With that stated, who pays the triple net charges? The landlord actually writes the checks and the tenant reimburses the landlord dollar for dollar.

But there is more to the story, and two important points to consider:

• First, all landlords are not the same.
• Second, some landlords attempt to recapture additional charges.

This is where the true value of your real estate agent’s experience enters the picture. Understand that additional costs do exist, such as capital improvement recovery and systems replacement recovery. Whereas most triple net recoveries are non-negotiable, some other costs are up for discussion. These costs attend to such matters as roof membrane, parking lot, landscaping systems/plant material and HVAC system replacements, even things like window system replacements. These items can be and are addressed in the triple net leases and need to be carefully considered. Consult with your real estate agent about these and be clear about them before you discuss them with your attorney.

When it comes to landlords, some are REITS and some are not. The two operate similarly in some ways, and very differently in other ways. It’s another consideration in your negotiations, and one that makes having an experienced on your side well worth it.
Considerations like these – and many, many others – boil down to this: your real estate professional’s experience and expertise are truly invaluable to you during these negotiations. Your company will live with their outcome for your entire occupancy of the premises. Don’t make the mistake of not finding the best representation possible for your side of the table.

Our posts are intended to educate commercial real estate users so they can make better decisions in their real estate use, investments, buying and selling. We encourage your input and commentary. If you are enjoying these posts and finding them useful, help spread the word via Facebook, Twitter, LinkedIn, Google + or email with the buttons above.

About the Author

Thomas Miller, CCIM

Thomas Miller, CCIM is the president and broker of Miller Industrial Properties in Reno, Nevada. He has worked in industrial real estate since 1991, with 15 years of previous experience designing and building industrial warehousing and manufacturing facilities in the northern Nevada market. Contact Tom at tom@mipnv.com or 775-742-9891.

Leave a Comment

Commercial and Industrial Properties Commercial and Industrial Properties Commercial and Industrial Properties Commercial and Industrial Properties Commercial and Industrial Properties