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it is always a good idea to work together with your management company and examine the commercial property management checklist for leasing services to mitigate bankruptcy risks and reduce downtime.
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A Commercial Property ManagementChecklist – A Triple Net Lease
What is a Triple Net Lease (NNN)? A Triple Net Lease (NNN) is an arrangement between the tenant and the landlord wherein the tenant is responsible for paying all the operating expenses in addition to rent. NNN stands for maintenance, insurance and taxes and is considered as the most advantageous leasing method for landlords. However, there are risks involved which can be detrimental for the landlord as well. The term, ‘Triple Net Lease’ is used loosely and therefore it is always essential to clarify what the lease includes or excludes in the leasing contract.
Risks of a Triple Net Lease • Difficulty in the assessing credit worthiness of tenant It is important to assess the credit worthiness of the tenant prior to finalising the contract. Single tenant triple net deals usually involve publicly traded companies and assessing their financial background is relatively easy as their credit ratings are available in the public domain. On the other hand, credit analysis of private investments requires more effort and not assessing them properly might create problems for the landlord as there is a high risk of bad debt. In such situations it is advisable to avail professional commercial property management in New York to ensure proper credit assessment of tenants.
Risks of a Triple Net Lease • Tenant might not report damages The maintenance of the property depends on the tenant. However, he/she may try to avoid paying maintenance costs by not reporting damages to the property. Also, the insurance chosen by the tenant might not cover all damages to the property. The tenant might let the policy lapse by not paying for insurance. In both these cases, there is a risk of bankruptcy and the landlord may be left with no choice but to pay off all pending liabilities. The maintenance of the property depends on the tenant. However, he/she may try to avoid paying maintenance costs by not reporting damages to the property. Also, the insurance chosen by the tenant might not cover all damages to the property. The tenant might let the policy lapse by not paying for insurance. In both these cases, there is a risk of bankruptcy and the landlord may be left with no choice but to pay off all pending liabilities.
Benefits of a Triple Net Lease • Tenants can be found easily Since a Triple Net Lease comes with lower rents for the tenants (as they are also sharing other financial obligations), landlords usually face no difficulty in finding new tenants. Especially when the building is new, it is preferable for the tenant because the rent is low and maintenance expenses too are not that high in the initial phase.
Benefits of a Triple Net Lease • No maintenance worries for landlord The tenant will be sharing the primary maintenance costs, insurance and property taxes with the landlord. The landlord need not worry as the maintenance responsibility rests with the tenant. Also, there is a regular flow of revenue and the lease term for a commercial property is generally for 10 years or more, thus providing the landlord with ample time to seek new tenants in case of a premature vacancy.
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