Things Tenants Should Know About Triple-Net (NNN) Commercial Leases

The Triple-Net (NNN) lease stands as a unique arrangement that significantly shapes the responsibilities and financial dynamics between landlords and tenants. Unlike traditional leases where landlords shoulder the burden of property-related costs, the Triple-Net lease places a substantial portion of these expenses on the tenant’s shoulders. To stay compliant with the law and avoid any mistakes that could put you at a serious disadvantage, consult with an experienced real estate attorney before signing the lease.

What is a Triple-Net Lease?

A Triple-Net (NNN) lease is a commercial lease agreement that places significant financial responsibilities on the tenant. In a traditional lease, the landlord typically covers property-related costs such as property taxes, insurance, and maintenance. Based on this, in a Triple-Net lease, the tenant assumes the responsibility for these additional expenses, hence the term “Triple-Net,” referring to the three primary costs.

This is a breakdown of the key components of a Triple-Net lease in California:

• Property Taxes: In a NNN lease, the tenant is responsible for paying property taxes associated with the leased space. This includes any assessments or increases in property taxes over the lease term.
• Insurance Premiums: Tenants are required to carry and pay for insurance coverage for the leased property. This often includes property insurance, liability insurance, and potentially other coverages as outlined in the lease agreement.
• Maintenance and Repairs: Unlike traditional leases where landlords handle maintenance and repairs, Triple-Net leases shift these responsibilities to the tenant. Tenants are expected to cover the costs of routine maintenance, repairs, and, in some cases, structural improvements.

Cost Burden on Tenants in a Triple-Net Lease

• Property Taxes: Tenants are responsible for paying property taxes assessed on the leased space. This can include real estate taxes levied by local municipalities or other taxing authorities.
• Insurance Premiums: Tenants must carry and pay for insurance coverage for the leased property. This typically includes property insurance to protect against damage or loss to the physical structure and liability insurance to cover potential injuries or accidents on the premises.
• Maintenance and Repairs: Unlike traditional leases where landlords handle maintenance and repairs, tenants in NNN leases are responsible for maintaining the property. This includes routine upkeep, repairs, and sometimes even major capital improvements to the building or infrastructure.
• Utilities: While not always included in NNN leases, tenants may also be responsible for paying utilities such as water, electricity, gas, and trash removal, depending on the terms negotiated in the lease agreement.
• Common Area Expenses: In some cases, tenants may be responsible for a portion of common area expenses, such as maintenance of shared spaces like parking lots, sidewalks, or landscaping.

Financial Obligations of Landlords in NNN Lease

In a Triple-Net lease, the tenant assumes the responsibility for various property-related costs that landlords typically cover in traditional lease agreements. These are the typical responsibilities and costs that landlords may bear in such an arrangement:

• Structural Repairs and Capital Expenditures: While tenants are responsible for routine maintenance and repairs, landlords typically retain responsibility for structural repairs and major capital expenditures. This may include significant repairs to the building’s foundation, roof replacement, and other structural improvements.
• Property Management Fees: Landlords may cover the costs associated with property management, including fees for overseeing day-to-day operations, handling tenant relations, and coordinating maintenance activities. This can vary based on the lease agreement.
• Land and Building Ownership Costs: Landlords are responsible for the overall ownership costs of the land and building. This includes mortgage payments, property depreciation, and any financing costs associated with the acquisition or development of the property.
• Insurance Deductibles: While tenants are responsible for insurance premiums, landlords typically cover insurance deductibles in the event of a covered loss or damage. This ensures that the property can be restored or repaired as needed.

Tenants in Triple-Net leases assume a significant portion of the financial burden typically borne by landlords in traditional lease agreements. This can result in lower base rents compared to gross leases but requires tenants to budget for and manage additional operating expenses associated with the property. 

It’s essential for tenants to thoroughly review and understand the terms of the lease agreement, including the breakdown of costs they are responsible for covering, to avoid any surprises and ensure they can meet their financial obligations throughout the lease term.

Top Reasons to Consult a Real Estate Attorney Before Entering a NNN Lease

Understanding Financial Implications

NNN leases involve significant financial responsibilities for tenants. A real estate attorney can help you understand the financial implications, including property taxes, insurance costs, and maintenance obligations. They can assist in structuring a lease that aligns with your budget and financial capacity.

Risk Mitigation

To identify and mitigate risks is a key role of a real estate lawyer. They can assess potential legal challenges or liabilities associated with the NNN lease and provide guidance on how to minimize these risks, protecting your business from unforeseen legal issues.

Due Diligence

Your lawyer can assist in conducting due diligence on the property, reviewing its condition, potential liabilities, and any outstanding issues. This ensures you enter the lease with a comprehensive understanding of the property’s status.

Dispute Resolution

You may find having an attorney on your side invaluable in case disputes arise. They can provide legal counsel, negotiate resolutions, or represent you in legal proceedings, ensuring your rights are protected.

Our Knowledgeable Real Estate Lawyers are Ready to Protect Your Rights

The real estate lawyers at Garmo & Garmo, LLP, have decades of legal experience in providing comprehensive assistance to clients tackling lease agreements. With a keen understanding of local regulations and a track record of successful client representation, we are ready to guide and support you through the complexities of your real estate endeavors. We are happy to provide you with a free case evaluation. Call us at 619-441-2500 or reach us online.