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to topic listingCommercial Lease Structure
How long are the leases?
Usually, Net-Leased Investment Properties have lease with lease terms between ten and twenty years. There are investments with less than ten years available for purchase, but they are usually leases that have aged and are often problematic for an investor who must seek financing. Short term leases also have residual value risks. Conversely, there are leases that run longer than twenty years, but these properties are harder to locate and usually are offered only in pure Sale/Leaseback type transactions.
What is a Net Lease?
A Net-lease is a lease by which the rent is "Netted out" of the gross operating costs incurred by the tenant. A Net-lease usually means the actual operating expenses and real estate taxes are not included in the net rent.
Commercial Investment Advisors strongly advise you and your counsel to completely review any lease you are interested in, since slight variations in lease language can have significant impact on how "Net" is the lease.
What is a Net, Net lease, vs a Net, Net, Net Lease?
Net-Leases: Simply leases which net out expenses. The more "net" a lease is the less property management related responsibility a landlord or owner has.
Net, Net Leases (Double-Net or NN): Usually means that the tenant not the landlord is responsible for all operating expenses and real estate taxes. Usually however, the owner or landlord is responsible for the building roof and structural integrity.
Net, Net, Net Lease (Triple Net or NNN): Usually means that the tenant not the landlord or owner is responsible for all operating expenses, real estate taxes and the building roof and structural integrity.
There are various forms of Net leases and all have varying degrees of net aspects. The most desirable is commonly called a triple-net "bond" net lease. This lease adds the protection for casualty and condemnation. This is considered the best lease for the owner or landlord.
It is often referred to as the "hell or highwater" lease, because assuming the tenant is of investment grade quality, the expectation is that the tenant will pay rent no matter what - even if the property is destroyed by casualty or "taken in condemnation". There is no concern for rental stream interruption.
On the other end of the spectrum, is the net lease ("single" "net" or "N") which has the tenant paying rent and possibly real estate taxes and or operating expenses, but usually involve the landlord or owner making these payments with some amount of reimbursement. This is the most undesirable form of a Net-lease, due to the landlord or owners involvement in the management of the property.
The terms Net, Net, Net are often used loosely in our business to define leases which are offered for sale.
