Owning a business often involves leasing commercial space. Once you find the right property, the next step will be negotiating commercial lease terms with the landlord. One option that may come up when developing your agreement is entering into a triple net lease. Triple net leases can provide a means for a business owner to rent commercial space at a lower cost. However, these agreements can also impose additional obligations on the leasing party. Therefore, if you are considering entering into this type of agreement, it’s essential to ask: Is a triple net lease right for your business?
The Triple Net Lease
If you are unfamiliar with this type of agreement, you may be wondering: What is a triple net lease? A triple net lease is a commercial real estate rental agreement under which the tenant essentially assumes all costs related to the leased space or asset. In addition to paying these expenses, the leasing party will also be obligated to pay rent to the landlord.
“Net” refers to an expense related to the lease. The name “triple net” comes from the fact that under the lease terms, the lessee will pay the net amount for three types of related costs:
- Real estate taxes on the commercial property
- Building insurance, and
- Maintenance of common areas
Ordinarily, the landlord would be responsible for these triple net expenses. However, the leasing party assumes this responsibility with a triple net lease. Since the lessee takes on the added costs under this agreement, the rent tends to be lower to offset the difference.
How Long Do Triple Net Leases Last?
On average, triple net leases last approximately ten years and often include incremental rent increases. However, the terms of these agreements may vary by industry, the parties involved, and the locale.
Why Use a Triple Net Lease?
Property Owner
- A triple net lease can offer long-term stability with lower risk for a property investor or owner.
- This arrangement also allows the owner to benefit from the leased property without paying for taxes, insurance, and upkeep.
- In addition, if they want to sell the property later, an owner or investor may be able to use their capital gains to acquire a new triple net lease property through a 1031 exchange.
Lessee (Business Owner)
- For the lessee, a triple net lease often provides a way for a business to establish or expand its operations without acquiring a property or land.
- There is also the added benefit of having a long lease with lower rent payments.
Some Issues to Consider with a Triple Net Lease
Sharing Expenses
If you are a lessee, one matter to consider is whether others will share your triple net lease expenses. If you are sharing the space, each renter will pay a proportionate share of the costs to the landlord. The landlord would then be responsible for using these payments to pay for the insurances, operating expenses, and taxes. As a single tenant, you would be responsible for paying these expenses rather than the landlord.
Payment
As a business owner, you will need to think about your ability to pay triple net costs in the long term. Once you sign the lease, you will be obligated to pay your rent and the identified costs. If these expenses are higher than expected and you don’t have the funds to pay for them, you may have to consider breaching or renegotiating the agreement.
Adequate Coverage
Paying triple net expenses will mean being insured according to the lease terms. Failure to maintain adequate coverage could result in a breach.
Maintenance
It will also be essential to think about what will be expected in terms of maintenance. Landlords need to be clear regarding what they anticipate in terms of maintenance. Lessees will need to consider whether the landlord is being reasonable in their expectations.
Under the right circumstances, a triple net lease can be beneficial to both a landlord and a business owner. However, these agreements can also have significant long-term consequences. Therefore, if you are considering signing a triple net lease, you will want to negotiate the agreement with the insight and assistance of an experienced Florida business attorney. Your Florida business lawyer will be familiar with the pros and cons of this type of commercial agreement and can help you determine if a triple net lease is right for your business.
Contact an Experienced Florida Business Attorney
Attorney Richard Sierra at the Florida Small Business Center assists clients like you with commercial leasing, business, and litigation matters. As always, Our Goal Is to Help You Succeed™. For an appointment, you may call us at 1-866-842-5202 or use the contact form on our website. We represent clients throughout the State of Florida, including Coral Springs, Coconut Creek, Boca Raton, Delray Beach, Pompano Beach, Sunrise, Fort Lauderdale, Miami, West Palm Beach, Jupiter, Deerfield Beach, Stuart, Port St. Lucie, Orlando, Naples, Fort Myers, Sarasota, Tampa, and surrounding communities.