Commercial Real Estate: Triple Net Leases

 Posted on December 00, 0000 in Naperville Real Estate Attorney

Finding the right location for a business is vital to its growth and success. Finding the right leasing arrangement can be equally important. Whether the business is brand new or simply relocating, a business owner must negotiate a commercial real estate lease that appropriately balances the physical needs of the company with the costs required to lease the property. Among the most common types of commercial leases is one known as a "triple net lease" which can potentially offer benefits to both the landlord and the tenant.

Triple Net Lease Defined

A triple net lease, or triple N lease, is an arrangement in which the tenant, in addition to rent, is also responsible for covering the cost of three extra expenses, thus the name triple net. Property taxes, insurance, and building maintenance are paid by the tenant, thus allowing the landlord to often require a lower monthly rent. While property taxes and insurance rates are not typically within the tenant's control, the tenant may be able to control other expenses related to utilities and other consumption charges.

Triple Net vs. Gross or Full Service Lease

When compared to a gross lease, or a full-service lease, a triple net lease shifts a larger number of expenses to the tenant. However, with the additional costs comes more control over the upkeep and physical appearance of the property. A gross lease arrangement is typically set up to allow for rent to be all-inclusive, covering most utilities, maintenance, taxes, and insurance. Tenants in a gross lease have much less flexibility, though, regarding physical modifications, for example, which may be important for some businesses.

Advantages and Disadvantages

Tenants utilizing a triple net lease may realize a number of benefits stemming from the agreement. The most significant of these may be transparency regarding business operating expenses. In addition to a clear understanding of the services for which the he or she is paying, any savings realized by a reduction in operating costs are enjoyed by the tenant rather than the landlord. With the added responsibilities of a triple net lease, the rent is also potentially lower than that of a standard gross lease.

Overall, however, triple net leases tend to favor the landlord in many aspects as well. With the assumption of responsibility for taxes and insurances, periodic increases to both may be passed directly to the tenant. Disputing such increases, including property tax appraisals, is often up to the landlord, who often does not have much vested interest in doing so as he or she is not responsible for paying the increased amount. Paying for building maintenance may also require the tenant to remain liable for most personal injuries occurring on the property.

A Professional Can Help

Commercial leases are often designed to suit the needs of the individual tenant and landlord. Triple net leases, in particular, may not be appropriate for every situation and a tenant considering one should carefully review all of the agreement's terms before proceeding. If you are an Illinois business owner looking to lease property for your company, contact an experienced commercial real estate attorney in Naperville today. We will help you understand your options and find the lease arrangement that best suits your business needs.