Properties with triple net leases, or triple N, offer landlords several advantages, however the primary advantage is the opportunity to receive a steady stream of income with minimal management responsibilities for the property. This is because the tenant is responsible for paying building maintenance, insurance and real estate taxes. However, without proper due diligence of each tenant, the landlord could end up paying for these costs and lose their tenants.
Building Maintenance
The landlord benefits in a triple net lease by pushing the costs to the tenant for monthly building maintenance. This not only lessens the burden of the landlord, but could also provide a damage-free property during the lease term. When the tenant is responsible for their share of repairs and maintenance, there is incentive to keep the property to avoid costly repairs. This becomes a win-win situation for both parties as the landlord's property will be well maintained and also provides a cheap monthly charge to the tenant. On the other hand, if a tenant does not report damages throughout the term of the lease, the landlord could end up with damaged property if not found prior to the tenant vacating the premises.
Insurance
Tenants are also responsible for the cost of insuring the property. Performing due diligence is key to ensure the tenant will be able to afford the proper insurance. The landlord should review the tenant's credit rating from various agencies, such as Standard & Poor's, Moody's or Fitch. If possible, the landlord should also review the tenant's financial statements for any cash flow issues. Additional research should be done to review the tenant's business and future viability in the marketplace. Performing due diligence prior to obtaining a renter could prevent unfortunate circumstances in the long run.
Property Taxes
Another advantage for the landlord in a triple net lease is passing the property tax cost to the tenant. As these costs continue to rise, this is a way for the landlord to maintain their expenses each year. Although these costs are typically out of the landlord's control, they need to be sure their appraisals are accurate. A good renter will expect the landlord to review the annual property taxes to ensure they are the paying the lowest cost.
Triple net leases are a great way for the property owner to minimize their annual costs of building maintenance, insurance and property taxes by pushing the responsibility to the tenant. The landlord should still perform their due diligence on the tenant and ensure that they are equipped to handle the responsibility to avoid future costs.
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