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Are Triple Net Leases Good for Tenants?

Seeing a triple net property for sale can pique the interest of savvy investors, but are triple net leases (NNNs) a good deal for tenants? Triple net lease properties are valued, in part, for being stable investments that require very little attention from the property owner. Tenants typically enjoy the long-term benefits a NNN lease agreement can offer them.

Understanding Triple Net Leases

In commercial real estate, the term “ triple net” refers to a lease that requires the tenant to pay all or a portion of the insurance fees, taxes, and maintenance costs incurred by a commercial property. Those three obligations (insurance, taxes, maintenance) represent the “triple” in a triple net lease.

It is easy to see why a NNN lease is attractive to investors. Commercial properties are considered long-term stable investments with little turnover, and with a triple net lease, little or no effort is required on the part of the investor. Almost all responsibilities fall on the shoulders of the tenants.

Triple net leases are common in commercial property. Many strip malls, shopping centers, and other retail sites are rented as NNN leases. It is common for a large chain store or another well-known retailer to be the “anchor” in a triple net property while smaller businesses fill in the remaining openings.

This arrangement is an advantage to smaller businesses that benefit from the foot traffic larger stores bring. Even though they are covering the costs of insurance, property taxes, and maintenance, tenants enjoy the advantages of a triple net lease agreement.

5 Reasons Why Triple Net Leases are Great for Tenants

1. Reduced Rent

The agreement to pay insurance, taxes and maintenance costs is offset by lower rent. With NNN leases, tenants have more leverage for negotiating affordable rent rates. They can use their creditworthiness, leasing track record, and history of financial responsibility as bargaining chips to lower the base monthly rent. Triple net lease property owners benefit from stability in their tenants and are typically willing to compromise on rent payments to gain greater stability. Tenants who are unsure about how to negotiate rent can get helpful advice from agents who specialize in NNN leases.

2. More Control

Because it is a tenant’s responsibility to pay for property improvements, they have the option to make the improvements they want. Being able to pay for improvements that directly relate to the growth of their business is a win for everyone. Property owners get the benefit of having their investments improved and renters can do what is best for their business. Renters are also empowered to hire the contractors they prefer when work needs to be done.

3. Lower Utility Costs

As a triple net tenant, business owners can choose their own utility providers and are not bound by whatever decisions the property owner makes. This allows tenants to shop for the best rates as they apply to their specific needs.

4. Greater Independence

Triple net lease properties are generally considered passive investments because they require little involvement on the part of the property owner. This is also an advantage for the tenant who doesn’t want a landlord constantly checking in and checking on them. Being a tenant in a NNN property is the next best thing to actually owning your own storefront.

5. Desirable Locations

Triple net lease properties are commonly located in high-traffic, high-value areas with good exposure. Business owners can take advantage of the lower rent rates that typically accompany triple net leases and move into a location they might not otherwise be able to afford.

What Are the Cons to Triple Net Leases for a Tenant?

Locating your business in a triple net commercial property isn’t ideal for everyone. The obvious disadvantage is the burden of being responsible for extra costs. Unlike rent, tax and insurance costs aren’t fixed. These expenses can end up being higher than originally estimated. Maintenance costs can also be high, especially in the case of unforeseen damages. Tenants cannot typically deduct property maintenance costs from their taxes. Only property owners are allowed that deduction.

However, even with these concerns, most tenants feel the benefits of NNN easing far outweigh the disadvantages.

Are You Searching for a Triple Net Property for Sale?

If you’re thinking about investing in a triple net lease property but are concerned about retaining tenants, put your concerns to rest. Long-term occupancy is one of the biggest pros of owning an NNN. Most sites see low turnover with responsible tenants who take care of the property as if it were their own because it is smart business. Tenants enjoy the advantages of having their business located in desirable areas they might not be able to afford otherwise.

To learn more about buying NNN properties that will benefit you and your tenants, contact Net Lease World today. Our team can help you find high-quality investment properties anywhere in the country or in your own backyard.

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