What is a Triple Net Lease? Its Advantages and Disadvantages

BY DAWAR

Renting out an apartment comes with so much hassles. The landlord is responsible for something as little as repairing any plumbing issues.

Wouldn’t it be great to have a more adaptive solution to let the landlord relax and continue collecting rent without any further tensions? Well, that’s where a triple net lease steps in.

Other than structural repairs, every thing is the responsibility of the tenants which makes the landlord’s job a lot more easy.

What is a Triple Net Lease?

The most popular type of a net lease, the triple net lease is commonly used for commercial properties. It is a rental agreement between the lessee and the landlord that comes with an obligation on the lessee. The obligation dictates that post-contract, the tenant is responsible for all kinds of operating expenses and not the landlord.

Examples

Consider the situation of a middle-aged man who has been working at his own coffee shop for a while. But due to some other commitments, he can’t work here anymore. He has two options: rent the property out or lease it out.

The gentleman decides to lease his property because the new commitment won’t allow him to be much active in any responsibilities of the property. Leasing the property will allow him to relax and not worry about the maintenance of the property as it is the responsibility of the tenant.

Advantages

A triple net leased property, without a doubt, is one of the most secure investments. The reason is its predictability of stabilizing as the time progresses provided that the property’s fitness is maintained regularly.

Furthermore, it is a source of steady income for a significant amount of time.

Steady income

Due to the long-term lease agreements, the landlords do not have to worry about finding new tenants in short intervals of time. In other words, this agreement ensures that a specific amount of money is to bound to be received by the landlord, without any added hassles.

Affordable rent

Rent, a painful reality for both the landlord and its tenants. Generally, landlords tend to set a higher amount of rate because they do no share the responsibility of repairing the property in case of any damage with the tenant(s).

But, in the case of a triple net release, a landlord will lower the rent when the overhead costs are shared and/or the responsibility of the tenant too.

Property taxes

Landlords like this feature more than the tenants as this advantage redirect any kind of increase in property tax towards the lessee and not the landlord.

Property control

The most commonly surfaced issue from tenants is about their inability to repair an integral component of the property without the involvement of its landlord. However, the lessee is at liberty here.

For example, if there is a damage in the plumbing system, the lessee is not dependent on the owner to get it fixed. Due to the triple net lease, it gives the tenants a significant amount of property control to provide ease to both the involved parties.

Long-term occupancy

Another advantage for the landlord is long-term tenant occupancy. This saves the landlord from the constant tension of having to repeatedly search for a new tenant.

Disadvantages

It’s not just a merry ride with a triple net lease. Let’s have a look at some disadvantages:

Negative Publicity

Publicity is one of the most tricky things in the professional world. While good publicity can uplift anything related to the subject of that publication. Bad publicity is equally bad.

Since the property becomes a shared property of the lessee, any negative publicity that is attracted by the lessee will directly affect it. This might result in a decrease in property value and make the landlord guilty by association.

Substantial property damage

The most common disadvantage of leasing a property is property damage. The lessee can choose not to maintain the property up to the landlord’s standard. This will hurt the landlord in the long run. When the lessee hands over the property before moving out and the landlord is exposed to major repair expenses.