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What is a triple net lease?

On Behalf of | May 17, 2024 | Real Estate Law

A triple net lease is a type of real estate lease agreement. In this lease, the tenant agrees to pay not only the rent but also three additional expenses. These expenses are property taxes, building insurance and maintenance costs.

This arrangement can be beneficial for landlords and tenants, but it also comes with specific responsibilities.

Understanding the components

1031 Crowdfunding, LLC reports that net leases generally have a longer duration than standard leases. Typically, they last 3-10 years. In a triple net lease, the “three nets” refer to the three additional expenses. These expenses include:

Property taxes: The tenant pays the real estate taxes for the property. This makes it easier for the landlord to manage the property.

Building insurance: The tenant must secure and pay for an insurance policy that protects the building from potential damages or disasters.

Maintenance costs: The tenant is responsible for the maintenance, routine upkeep and any necessary repairs to keep the property in good condition.

The lease agreement will specify the details of these three components.

Advantages for landlords and tenants

A triple-net lease offers several advantages for landlords. First, it reduces the landlord’s financial burden. This can lead to a more stable and predictable income. Additionally, landlords can often charge a lower base rent because the tenant covers the additional expenses.

For tenants, a triple-net lease can also be attractive. Tenants gain greater control over the property since they handle its upkeep and insurance. This can be beneficial for businesses that require a well-maintained space to operate efficiently.

Considerations before signing

Before entering a triple-net lease, tenants should carefully evaluate the total costs. These costs can vary significantly depending on the property’s location and condition. Tenants must budget for potential increases in property taxes and insurance premiums. It is also important to anticipate regular maintenance.

Tenants should also inspect the property thoroughly before signing the lease. Understanding the property’s condition helps in estimating future maintenance expenses. Clear communication with the landlord about responsibilities and expectations is essential to avoid disputes.

When putting together a lease, both the landlord and tenant should consider whether a triple net lease is their best option.