Real Estate Leads - triple net lease
Dealing with triple net lease (NNN) 1031 exchange property and more...
A triple net lease (Net-Net-Net or NNN) is a lease agreement on a property where the tenant or lessee agrees to pay all real estate taxes, building insurance, and maintenance (the three 'Nets') on the property in addition to any normal fees that are expected under the agreement (rent, etc.). In such a lease, the tenant or lessee is responsible for all costs associated with repairs or replacement of the structural building elements of the property.
Although rents are usually lower in triple net leases than other forms of lease agreements, this form of lease agreement is desirable for real estate investors since the expenses incurred on the investor are dramatically decreased due to the transfer of financial responsibilities on the property from the investor/lessor to the lessee. But they may also have certain tax disadvantages for the lessor. Among other effects, if the lease produces losses, these could be disallowed for their tax benefit due to the passive loss limitations of the Internal Revenue Code Section 469 or the at-risk rules of IRC §465, and significant income from them could cause a closely held C corporation to become a Personal Holding Company per IRC §542 (subject to a special tax), or an S corporation to lose this status per IRC §1362(d)(3).
This form is frequently used for freestanding buildings, such as outparcel developments or single-tenant "big box" sites.
Use of a triple net lease may be a prerequisite for credit tenant lease financing, and may permit a lender to lend to the landlord on nonrecourse terms.
The primary purpose for a Triple Net Lease (NNN) property, places the responsibility to pay all property expenses upon the tenant or Lessor. These expenses include taxes, insurance premiums, maintenance, repairs, any upgrades, and utility bills. Also, additional expenses may include: Cost to repair any roof damage, heating, air conditioning systems, exterior parking surfaces, cleaning any carpet and miscellaneous expenses. The records of these costs have to be made available by the property owner to any prospective tenant for review, and consideration to manage these expenses. Sometimes NNN agreements, the landlord will collect from the tenant a monthly amount, will be added to a fund, which covers property maintenance costs. Most Triple Net Lease agreements are long term from ten to twenty-five years, and include the cost of living expense increases. Owners of these properties, enjoy the ease of maintaining their equity, since the tenant long - term lease contract, encourages them to maintain the integrity of the property and keep up to date, with any necessary repairs. Well known companies in the US have Triple Net Lease properties: Jack-in-the-Box, Hartford Insurance, Goodyear Tire, International House of Pancakes, Applebee's, Tony Roma's, Steak & Ale, Burger King, Barnes & Nobles, Marie Callanders, Tac Bell, IBM, and Blockbuster Video. Also, including are beauty salons, groceries, retail stores, shopping centers, malls, and many more.
Owners of Triple Net Lease properties have fewer expenses or
costs to consider, since those financial responsibilities are transferred to
the renter or Lessor. Tenants of Triple Net Lease agreements, tend to have a
high credit rating, very good cash flow, which pays the various costs of the
property, and reliability to pay the rent on time. Consequently, the charge for
rent is usually lower. This creates an optimal investment, for part-time
investors, and reliable long - term income. Any increase in property taxes,
paid by the tenant. Certainly, advisable for the property owner to challenge
any property tax increase, if the charge is unfair, because when the property
is vacant, the owner will be responsible for the taxes or the tenant should pay
a fair tax charge. Also, well established business, recognizable logo, and good
economic healthy neighborhood, will likely encourage the tenant to renew their
lease agreement, upon agreeable terms. However, one important concern, when a
credit rating for a business is lowered by Standard & Poors, Moody's or
Ftich, that may trigger a warning, upon the financial ability of the tenant to
maintain and pay the rent and other costs, in the future or default upon their
agreement. This may happen, during times of economic slowdown, increase in debt
to equity ratios, industry sector performing poorly or falling upon poor
management ability skills. The best approach, signing Triple Net Lease property
with a business that is operating within a growth industry. Currently, health
care industry has been rapidly expanding, which includes drug stores, such as
Walgreen, CVS/pharmacy, and Rite-Aid.
A caution status should be considered, when a tenant is in poor financial condition, and has a large insurance policy or has over insured the building. Unfortunately, many times reported in the news, this type of scenario may cause the tenant to willfully damage the property or commit arson, in order to collect an insurance claim. Most of these situations are discovered, and the insurance claim is denied. As a result, the tenant will likely file bankruptcy and the landlord becomes responsible, for paying any restoration costs.
Location has always been a major concern in real estate, and especially for Triple Net Leases, where the tenant secures a long - term agreement for many years. If the property is located in a poor geographic or declining economic neighborhood, chance of locating a tenant is greatly reduced. Also, considering the zoning requirements in the area or what may not be permissible type of businesses. The investor of the property may have to incur, additional cost for refurbishment, as an incentive for establishing a new lease agreement with a tenant. Always advisable to hire an attorney, when preparing a Triple Net Lease agreement, which may include specific cancellation and default penalty clauses. Also, this type of agreement is available online. A popular transaction is a Sale - leaseback's, which enables companies to sell their real estate and substitute ownership for a long - term lease, which is essentially a Triple Net Lease agreement. Coldwell Banker Village Communities Commercial Division has access to properties across the United Sates, offering investors the opportunity to purchase properties for Triple Net Lease agreements. In March 2006, Getty Realty Corporation (Largest publicly - traded real estate investment trust in the United States) acquired eighteen properties, which have Triple Lease agreement with Yellow Goose markets, a leading convenience store operator.
For more information on Triple net leased properties covering all states, please write to me with your specific requirements at firstname.lastname@example.org