What is a Triple Net Lease?

Posted by admin on December 11, 2012 under by Tim Davis, Commercial Real Estate Definitions, daytona beach commercial real estate, Daytona Commercial Real Estate | Be the First to Comment

daytona commercial real estate, what is cap rate, what is triple net, what is a gross lease, gross rent,This could be the most common question ever asked by a potential tenant when asking how much a space costs. You can almost feel the question coming.

“I’m calling about the warehouse on Fentress Ave. How much is it?”
“Yes, that is 4.50 a square foot, triple net.”
“Ok………”

And then it comes – right after a small silence as they are trying to process the math and come with how much per month that will be.

Triple Net leases are very common, even now the norm on many property classes such as retail and office. What it basically means is that the owner will lease you the space for a certain price per square foot of base rent, then you will pay another amount per square foot in addition, that will cover the cost of the property taxes, property insurance, and common area maintenance. The idea behind this is it allows the owner to quote a lease rate that does not require them to try and forecast what the taxes and insurance might be in the future. This is helpful if the lease is long term, generally 3 years or longer.

It is like saying, I will lease you my building for $XXXX per month. If the taxes/insurance/maintenance costs go up(or down!) during the term of the lease hat change will be passed on to you.

While it sounds bad to some potential tenants, it can actually be good for you. If an owner has to bear the risk of an unforeseen increase in the cost of tax or insurance down the road, then they will have to price the property at a higher rate per square foot. If you remove that risk from the equation, then you can get the best rate possible, because the building owner has a very rock bottom rate that they must get for the property in order to pay their debt payments, and they take some profit for their investment. You want to remove everything from the equation so that you can negotiate a lease rate simply upon that last part, the owners profit received from your tenancy. Neither of you can control the taxes, insurance, cost of maintenance issues, or the interest rate on the mortgage.

And just maybe we go 3 years with no hurricanes, the building owner figures a way to lower its assessed value, and his cousin starts doing the landscaping for $100/mo less money. It could happen.

T.D.

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