All About Triple Net
There are many forms of leasing strategies. The one that is commonly used by majority of the people or in this case landlords has to be the triple net leasing structure. So what exactly is a triple net?
Triple net is a type of lease structure where a tenant agrees with the landlord to pay additional expenses that may come about as a result of operation of the property, including, property taxes, building insurance and common area maintenance. These three highlighted factors are what are commonly referred to as the “three nets” and they are additional rent that is usually paid together with the basic rent at the end of the month or year depending on the agreement reached upon with the landlord.
This leasing structure is commonly used in retail real estate. This structure heavily relies on the three nets. To understand this strategy better, the three nets need to be put into perspective. First is the common area maintenance. This is an additional rent expense paid to the landlords and this covers the cost associated to the overhead in operating expenses covered for the common areas of the properties. This common areas may include, elevators, shared bathroom hallways, lobbies and security.
Secondly, is the property taxes. Just as the name suggests these are funds that are paid to the national government and the taxes paid often but not always depend on the size of the retail of property.
Last but not least is the building insurance. In the event there are fires, explosions, storms etc. the building insurance helps to cover the cost of repairing damages that the structure of the property may have.
The reason why most landlords opt for the triple net lease structure is because most of the burden is removed from them and the tenant is the one with the most burden (financially) as seen above.
Since most of the financial responsibility is passed on to the tenant, it is also vital to understand how to calculate a triple net lease. Since a triple net lease constitutes of three different quatities then
(Property taxes × building insurance ×common area maintainace) ÷ total square feet
This would give the total amount to be paid in terms of the triple net. The amount of triple net paid would vary, this is because, each year one is never really sure of how much will go into carrying out maintenance within the property. The taxes and insurance remain as constants as a person knows exactly how much they would pay for both.
This is just additional rent it is not in any way a profit for the landlord as the landlord will simply be passing on these expenses to the tenant who is making use of the property.