At a simple glance, it may seem like a triple net lease is something of a raw deal for the tenant. And based on raw metrics alone, it can be. In addition to paying standard rent, tenants are also required to pay property taxes.
But the big issue is the liability that falls on the shoulders of the tenant. In these arrangements, the landlord plays a more passive role and bears little liability. But that more hands-off approach can be incredibly beneficial if you’re willing to look at the situation from the right angle and position things in your favor.
When a landlord decides to sign off on a triple net lease, they’re deciding to make an investment in the long-term potential of that property. And ideally, they want to make an investment into tenants without running the regular risk of turn-around.
That means that if you’re a model tenant, most landlords are going to be motivated to keep you around. It also means that you have a lot more freedom to negotiate the terms of your contract. The raw numerics of monthly rent will matter less to a landlord in a NNN lease – and while these leases tend to be pretty tight and at least 10 years in length, there might be more wiggle room than you think. Having a property occupied and paying for itself is more important than monthly net income.
Some things that are definitely not consistent about a NNN lease are the vagaries of repairs and maintenance. The amount of money you might need to spend on dealing with a water leak or a busted boiler can dramatically change your expenses on a month by month basis. But there’s undoubtedly a deeper level of consistency that comes from involving yourself in a NNN lease.
As a means of maintaining their long term investment, landlords that prefer this type of lease almost always make tenants sign leases of 10 years or more. The terms of rent increases are also typically baked into these contracts to keep pace with inflation. The unknown variables aren’t as multitudinous as they seem, and you can find a good sense of consistency by just setting aside money for unexpected expenses.
Freedom to Renovate
Since you’ll likely be tied to a property for a decade or more when you sign a NNN lease – and since you’re liable for any issues that may arise from damage or accidents – the landlord is generally going to be less worried about any alterations you might make to the property. In effect, a NNN lease provides some of the liberations of property ownership while still renting a property.
If anything, renovations and alterations to the property are a benefit to the landlord. Since the property is a long-term investment, these changes can be seen as a no-cost way for the landlord to improve the value of their investment.
When rent goes up on a residential property, you can probably guess that there’s been a rise in property taxes or utilities. But it’s less likely that you’ll see rent decrease when expenses go down, and a general lack of transparency ensures that you don’t know how much a yearly rent increase is going to your landlord and how much is going to necessary expenses.
That’s not an issue with a NNN lease. While you will have to deal with fluctuating costs thanks to your added liability, you’ll know exactly where those expenses are coming from. A NNN lease is a lease that benefits the most meticulous business owners. If you don’t mind taking a hands-on approach and have the forethought to put aside money for unexpected expenses, it can be a mutually beneficial arrangement for both property owners and business owners.