NNN Lease

In United States real estate business, normally the landlord, rather than the tenant, is responsible for real estate taxes, maintenance, and insurance. In a , 'net lease' the tenant or lessee is responsible for paying, in addition to base rent, some or all of the recoverable expenses related to real-estate ownership. As the rent collected under a net lease is net of expenses, the base rent tends to be lower than rent charged under a gross lease. In United States real estate business, normally the landlord, rather than the tenant, is responsible for real estate taxes, maintenance, and insurance. In a , 'net lease' the tenant or lessee is responsible for paying, in addition to base rent, some or all of the recoverable expenses related to real-estate ownership. As the rent collected under a net lease is net of expenses, the base rent tends to be lower than rent charged under a gross lease. Net lease types include single net, double net, and triple net leases, depending on the number of items they include. The term 'net lease' often being used as a shorthand expression for any of these arrangements. The three most common expenses charged back in this fashion, often called the 'three nets', are property taxes, insurance, and maintenance. A triple net lease that includes the three nets is particularly common and is often abbreviated in writing as 'NNN lease', but is still pronounced as 'triple net lease'. NNN leased investments are generally leased to one single tenant and are thus referred to as STNLs or Single Tenant Net Leases. A NNN lease investment can however have two or more tenants, though it would not be considered an STNL investment. An example of this would be a Starbucks & MetroPCS which share a building under two separate NNN leases, or a retail strip center where all tenants are wrapped into one NNN lease. Both examples would be considered NNN leased investments; however they would not be STNLs. The risk of default is spread out over more than one tenant in such NNN deals (i.e. if either Starbucks or Metro PCS goes bankrupt, the other tenant continues to pay the rent due under their NNN lease). Such deals can appeal to investors seeking to spread risk, though the simplicity of collecting one rent check from one tenant is forfeited. Another variation of the NNN lease is the NN lease or 'Net-Net' lease which is pronounced 'double net' where the 'net' amounts generally are property tax and insurance. Double net leases, like triple net leases, are usually, though not always, single-tenant arrangements, however, the landlord carries some extra financial maintenance obligation. The term 'Net Lease' is tossed around loosely in the net lease industry, often used when referring to a triple or double net lease; however, there is a definite distinction between a triple net and a double net lease even though some brokers erroneously use the term 'Net Lease' to describe both. Double net leased investments generally trade at a slightly higher CAP rate than triple net leased investments, because of the maintenance expenses which the landlord is responsible for. Brand new NN Deals with long-term builder warranties covering the roof and sometimes structure can be attractive to investors looking for a higher return. Though NNN leased investments are considered to be highly risk-averse investments, especially when leased to a national credit tenant, the landlord is still exposed to some financial risk. In the fine print of most NNN leases these risks are specified. For instance, who carries the obligation to rebuild after a casualty (natural disasters included) or whether the tenant must continue paying rent should the property be condemned? In other instances, certain risks (e.g. fluctuations in property taxes) cannot be completely accounted for in the initial contract, forcing the landlord to estimate these costs early on. In this scenario, if the landlord's accountant does not follow through with changing the invoices appropriately, it may cost the landlord thousands of dollars by the end of the taxable year. Although NNN lease investments carry relatively low risk, they require high levels of oversight for these reasons. In one variation of a NNN lease contract, the 'bondable NNN lease' (sometimes referred to as a 'true triple net' or 'absolute triple net' lease), the tenant cannot terminate the lease or seek any rent abatements under any circumstances, a provision that mitigates some of the risk for the landlord. Investors can benefit from NNN lease properties in a variety of ways. In NNN leases tenants take on the responsibility of major expenses such as HVAC and roof repairs keeping the operation cost lower for the landlord. Typically NNN leases have lower rent per square foot rates which increases the tenant pool when a landlord is ready to lease the property. For specific tenants, landlords will frequently modify leases allowing for greater flexibility and higher tenant retention. Most investors in today's net lease market prefer an investment that is truly passive, therefore, an absolute net lease is a requirement for many of these investors. Investors prefer to hold these assets long-term, which means there is likely some wear and tear maintenance, as well as a roof that will need to be replaced at some point. With an absolute net lease in, the risk of expenses associated with building maintenance shifts solely to the tenant, allowing the landlord to receive a 100% passive investment. In its simplest form, a 1031 exchange is a tax deferral strategy for real estate transactions in which a property owner or investor sells one property and purchases another within a specific time frame. However, the transaction must qualify as a 'like kind' exchange.