If you are considering buying a commercial property, then it is important to understand the basic structures of the leases?
Why?
Because you’re commercial loan terms will be based on the type of lease of your commercial property. In this article, we will only look at two of the more popular lease types…Net Leases.
#1 NNN Lease
In an Absolute NNN lease, the tenant pays for property taxes, insurance and maintenance in addition to the rent.
Most triple net properties are for a single tenant and are long term (5 yrs or more).
This is considered a very desirable investment because the owner basically has no management or maintenance issues; they are the responsibility of the tenant. These items are negotiable, so read the leases carefully. Even though a property may be advertised as a triple net, until you read the lease you will not know.
Some well known companies that are usually triple net are Walgreen's and CVS pharmacies.
#2 NN Lease
NN lease is a type of lease that usually requires the tenant/lessee to pay for property taxes and insurance in addition to the rent. The owner/lessor will pay for maintenance (roof & structural).
This type of lease is not as desirable as a triple net lease for the owner. Why? Because it involves the owner in some of the management details & expenses. With a triple net lease, the tenant is responsible for all expenses, taxes and insurance. As an owner, you want most, if not all of your expenses "net" out of the lease.
The forms of net leases are: N, NN, NNN, and NNN Bond lease. The only way to know exactly what expenses you are responsible for is to read the leases carefully before you buy the property.