Triple Net Lease Vs Absolute Net Lease

• Category: Landlord Tenant - Commercial Leases - Triple Net
• State: Multi-State
• Control #: US-00794BG
• Format: Word; Rich Text

Description

This form is a lease agreement on a property where the tenant or lessee agrees to pay all Real Estate Taxes (Net), Building Insurance (Net) and Common Area Maintenance (Net) on the property in addition to any normal fees that are expected under the agreement (rent, etc.). In such a lease, the tenant or lessee is responsible for all costs associated with repairs or replacement of the structural building elements of the property.

Triple net lease, also known as NNN lease, and absolute net lease are two types of commercial real estate leases that differ in terms of the responsibilities and financial obligations of the landlord and the tenant. Both types of lease arrangements are commonly used in the commercial real estate industry. Let's delve into the details: Triple Net Lease: A triple net lease is a type of lease agreement in which the tenant bears the burden of paying his share of the property's operating expenses, including property taxes, insurance, and maintenance costs, in addition to the agreed-upon rent. Essentially, the tenant takes on the "three nets" — property taxes, insurance, and maintenance and repair costs — hence the name triple net. Under a triple net lease, the tenant typically assumes full financial responsibility for the property, making it a favorable choice for investors. The landlord is relieved of most expenses associated with property ownership and management, minimizing their involvement and allowing for a more passive investment. This type of lease is commonly employed for long-term commercial leases such as freestanding retail properties, office buildings, industrial spaces, and even some single-tenant properties. Absolute Net Lease: An absolute net lease is similar to a triple net lease but places an even greater burden on the tenant. Under an absolute net lease, the tenant assumes complete financial responsibility for all property-related expenses, including structural repairs and replacements. This means that the tenant is responsible for the costs associated with any significant repairs, such as roof replacements or major structural repairs, on top of the property taxes, insurance premiums, and maintenance obligations. The absolute net lease is considered the most extensive type of lease for tenants and provides landlords with a virtually hands-off investment. Absolute net leases are generally used in high-quality commercial real estate properties with long lease terms and creditworthy tenants, such as single-tenant net-leased properties, government-leased buildings, or large-scale corporate headquarters. Different Types of Triple Net Lease: 1. Single Net Lease: In a single net lease, the tenant is responsible for paying property taxes on top of their rent, whereas the landlord is responsible for insurance and maintenance. 2. Double Net Lease: A double net lease transfers the burden of property taxes and insurance costs to the tenant, while the landlord remains responsible for maintenance and repairs. 3. Modified Gross Lease: Though not categorized as a true triple net lease, a modified gross lease is a form of lease where some or most of the operating expenses are shared between the landlord and tenant. While the tenant may pay an agreed-upon share of certain expenses, the landlord retains responsibility for most maintenance and repairs. Understanding the distinction between triple net lease vs. absolute net lease and their various subtypes helps investors and tenants make informed decisions based on their financial goals, risk tolerance, and property requirements.