Triple Net Lease Pros And Cons: What Tenants And Landlords Need To Know 

Among all things commercial real estate leases, triple net leases are undoubtedly the most popular. As a result, it’s also commonplace for tenants and landlords to be curious about triple net lease pros and cons.  

You see, when it comes to long-term renting, a triple net lease offers unmatched flexibility. So, it isn’t surprising why both owners and tenants find it to be a win-win deal. 

But let me tell you that a lease agreement like this also has its shortcomings. From reduced base rent for landlords to the burden of taxes and triple net lease inspection on tenants, the list of pitfalls is long. 

As such, it is essential you’re aware of what exactly an NNN lease has in store for you before you commit to a long-term lease. 

Read on, as I’ve discussed the pros and cons of NNN leases in detail along with my own insights as a commercial building inspector

What is a triple net lease? 

Let’s start with the basics first and understand what a triple net lease exactly is before we move on to its pros and cons. 

Also called an NNN lease, a triple net lease is a common commercial lease arrangement where you pay more than just the base rent. Herein, you’ll assume responsibilities for such operating expenses that are traditionally borne by the landlord.

For instance, let’s say you’ve rented an office condo under an NNN lease. Now, apart from the base rent, you’ll also have to pay for your office’s property taxes, insurance premiums, and ongoing maintenance. 

In fact, it’s these three additional expenses that tenants bear that have earned this lease type the name NNN or triple net. 

Note: Tenants might have to pay for more than the three nets

While a triple net lease usually involves the three additional expenses or nets as tenant responsibility, you may have to pay for more operational expenses. 

For instance, apart from ongoing maintenance, it might also be a tenant’s responsibility to foot the bills for major repairs and renovations. 

Similarly, if you call in for a real estate condition report to conform with safety standards, you’ll have to pay from your own expenses. 

Not to mention, it’s the tenants who usually pay for garbage collection, parking lot maintenance (if it is separate from the main property), etc., apart from their base rent. 

Triple net lease pros and cons: What’s in store for you? 

Now that you know what a triple net lease is, let’s answer your biggest question, i.e.: What are the pros and cons of NNN leases?

For starters, one of the biggest advantages of a triple net lease is that it’s a long-term contract with a convenient base rent. 

In fact, this is something that both tenants and landlords find attractive. After all, both parties easily reach a mutually agreeable deal. 

However, there are some clear pitfalls of a triple net lease, not the least of which comes in the form of add-on responsibilities for tenants. 

Curious about what’s more to triple net lease pros and cons? 

Here are some of the common upsides and downsides of NNN leases: 

Triple net lease pros 

#1. It’s a long-term lease agreement

Did you know that the duration of a typical NNN lease is between 10 and 15 years?  

Moreover, in my own experience, I’ve seen properties leased under NNN for over 25 years. And this is an indication of triple net lease agreements being long-term and lasting for decades. 

Now, the longer duration is a win-win for both landlords and tenants. 

For landlords, the fact that tenants stay on for long is an advantage since they don’t have to deal with frequent vacancies and turnovers. 

At the same time, tenants can benefit from the long lease duration to focus on their business rather than worrying about finding another suitable property. 

#2. Base rents are typically lower

A key advantage of a triple net lease for tenants is that base rents are much lower than what you’d expect in a gross or full-service lease. 

Also, it goes without saying that the base rent itself is negotiable and can be brought further down. To do so, you can cite the added financial responsibilities and persuade the property owner to lower the rent. 

You see, since landlords are free from the responsibility of property taxes and insurance premiums, they’re quite flexible in rent negotiations. Meaning you can get a favorable base rent without much hassle. 

#3. Tenants have control over the property’s operational expenses  

An NNN lease is perfect for such tenants who need a commercial property to run their business from but aren’t prepared to purchase one. 

Why? 

Well, with a triple net lease, you can have a lot of control over the property’s operational costs. And this, in turn, will allow you to use the property as per your requirements. 

For instance, let’s say you’ve rented a warehouse under a net net net lease. Now, you can hire your own service contractors or even renegotiate the existing contracts to tune them to your specific necessities. 

Simply put, you get a direct say over how much operational expenses you’ll incur during the lease period. 

Sounds amazing, doesn’t it? 

#4. Tax benefits and insurance caps 

When we talk about triple net lease pros and cons for tenant, it’s worth mentioning one of the most strategic perks that tenants get in terms of tax and insurance. 

Let me start by talking about the tax benefits that you can avail, courtesy of your NNN lease. 

You see, as a tenant in a triple net lease, you’re supposed to pay property taxes, which add up to your business expenses. And this is something you can use to avail corporate and income tax benefits. 

Furthermore, most NNN leases come with tax and insurance caps, offering protection against any hike. So, rest assured your property taxes and insurance premiums will remain the same throughout the lease.

#5. Triple net leases are transferable 

As a tenant running your business from a leased property, an uninterrupted lease period can be invaluable. 

Thankfully, an NNN lease is completely transferable. Meaning even if the existing owner sells the property, the new owner will honor the lease. 

In fact, the transferable nature of triple net leases is also advantageous for landlords. That’s because they’re free to sell the property at any time without the potential liability of honoring the lease and waiting for its expiry. 

#6. Landlords have steady incomes with low responsibilities 

If you’re a property owner who values a consistent income source with minimal responsibilities, then the triple net lease is certainly for you. 

For one, you receive a fixed monthly cheque for an extended period ranging up to decades at times. 

Also, all major responsibilities are taken care of by the tenant, so you need not invest time and money. 

Note: Landlords may have to pay for property assessment during an NNN lease 

For property owners, obtaining a thorough inspection report is the only way to determine the property’s condition during the lease. Moreover, this is also the only way to determine your tenant’s exact maintenance responsibilities. 

However, to do so, you’ll have to bear the cost of property condition assessment

Triple net lease cons 

#1. The owner’s rental earnings are low and fixed

One of the biggest complaints of triple net lease that I hear from landlords is the low rental earnings. And this is especially true if you compare the income from other lease types such as gross lease. 

You see, the fact that your tenant is assuming major financial responsibilities for your building means they’ll negotiate a low base rent. 

What’s worse? 

The lease agreement lasts for about 10-15 years, and you can’t increase the base rent during these many years.

#2. Tenants have to manage a property they don’t own 

Tenants in a triple net lease are often unhappy about the additional obligations that they’ve to fulfill apart from rent payments. 

And rightly so. 

At the end of the day, they’ve to pay for operating and maintaining a building that they don’t own. 

Picture this: If you own a building, maintenance expenses become more of an investment since it helps safeguard your property. 

But that’s no longer the case if you’re a tenant. As such, the add-on expenses become a zero-return liability. 

#3. Tenants may have to bear unwarranted maintenance expenses

If for some reason you didn’t get an NNN inspection before the lease, you might be in for a costly surprise.  

How, you may ask? 

It is commonplace for landlords to carry out building inspections in the middle or at the end of the lease period. Herein, it is possible that the inspection report will throw up some damages or defects. 

Now, even if you’re not responsible for such damage, you’ll still have to pay for the repairs. That’s because there’s no proof that the damage was pre-existing and it wasn’t caused by you. 

All in all, you’re in for an additional unwanted expense ranging between a few thousand to tens of thousands of dollars in such cases. 

Pro tip: Do schedule an inspection before entering a lease agreement 

It is standard practice for both landlord and tenants to call for a commercial property inspection before finalizing the lease. This brings clarity about who is responsible for what and protects tenants from undue expenses on repair and maintenance. 

Triple net lease: Frequently asked questions 

What does the landlord pay for in triple net lease? 

If there’s one common question that both tenants and landlords have about triple net leases, it is the financial responsibility of the landlord. 

You see, since tenants bear most of the operational expenses, it creates an impression that landlords don’t have to bear any expenses. 

But that isn’t true as landlords still have to pay for three things, namely: 

  1. Mortgages: It is the sole responsibility of the landlord to pay off any mortgages. 
  2. Securing insurance: Landlords need to get their property insured and pay its premium till the time the property isn’t leased. 
  3. Pre-lease maintenance and repair: Before leasing the property, landlords have to carry out all essential repairs and maintenance at their own expense. 

Gross vs triple net lease: What’s the difference? 

As we discussed earlier, a triple net lease is one where tenants pay for three additional operational expenses apart from the base rent. And this includes property tax, insurance premiums, and ongoing maintenance. 

Now, a gross lease is completely different from a triple net lease since there’s no add-on responsibility. Meaning, as a tenant you only pay a base rent. 

Here, the landlord assumes responsibility for all other expenses such as maintenance, taxes, insurance, etc. 

That said, the base rent in a gross lease can be way higher to account for the operational expenditure incurred by the landlord. 

Net lease vs triple net lease: How are the two different? 

Similar as it might sound, both net lease and triple net lease are different from one another. 

A net lease, as the name suggests, involves only one additional expense that the tenant incurs besides the base rent. And this is usually the property tax that the tenant pays for. 

So, the landlord still has to pay for insurance premiums and maintenance charges. 

Bonus: A pre-lease phase 1 ESA can protect you from environmental liabilities 

Apart from the add-on expenses, you might also end up paying for decontamination if environmental hazards are found on your rented property. 

And that’s exactly why I suggest you get an environmental site assessment as per the phase 1 ESA checklist before entering a lease. 

To learn more, read my blog on Phase 1 Environmental Site Assessment Checklist

To sum up 

As you can see, a triple net lease has its fair share of pros and cons. 

Nevertheless, the pros and cons of NNN are subjective and may differ for different businesses. For instance, while tenants need to pay for operational costs, it might actually be beneficial for some tenants who need more control over their rented property. 

Similarly, even though the base rents are lower in NNN leases, landlords have the advantage of consistent income and a low rate of vacancy. 

In the end, it is about your preferences and requirements. 

But whatever the case, take my advice and schedule a NNN inspection before the lease. After all, it is the only way you can be assured of a trouble-free lease period. 

Want a triple net lease inspector for the task? 

You can get in touch with us and receive a free inspection quote

At FCBI, we are seasoned NNN lease inspectors with experience spanning over two decades. And we’ve got all your triple lease inspection requirements covered on a budget. 

You can also read: Warehouse Inspection Checklist: 12 Things To Inspect For Safety

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