Q:  What is a triple net (NNN) lease?

A:  A triple net lease (triple-Net or NNN) is a lease agreement on a property whereby the tenant or lessee promises to pay all the expenses of the property including real estate taxes, building insurance, and maintenance. Triple net leases tend to have a lower rent charge because the tenant assumes more of the ongoing expenses for the property.  For a multi tenant retail plaza, the Landlord will perform the maintenance and bill each tenant their share, based on square footage.


Q: What are the considerations for a 3 year vs 5 year lease term?

A: There are a lot of factors to consider here, and we will just touch on a few.  A Landlord usually wants a stable long term tenant, so they will usually be willing to offer some concessions for a longer term.  Plus, the Landlord’s lender likes to see longer term tenants and will be more willing to offer better loan terms.  Also, if you are asking for financial help of any kind – like a tenant improvement allowance – then this allows for more time for those costs to be spread out into the term, thus lowering the monthly payment.  But this assumes you have good credit.


Q:  What is a Tenant Improvement Allowance (TI)?

A:  This is an allowance granted by the Landlord to improve the space.  It can be used for things like flooring, paint, HVAC, plumbing, and electrical improvements.  Typically a Landlord will not allow this money to be spent on specific trade fixtures or inventory.  The Landlord will often ask for documentation of how these funds are spent.


Q:  Why is a tenant required to pay for maintaining things like the electrical, plumbing and HVAC?

A:  These items mostly exist for the benefit of the tenant, and if the tenant has to pay for them, then the tenant will usually take better care of these systems.  Plus the Landlord’s lender prefers this kind of lease to diversify the risk more evenly between the tenant and landlord.


Q:  Should I be willing to pay percentage rent?

A:  Usually a Landlord will be willing to offer better terms if you are willing to pay a percentage of your gross sales over a natural break point.  The breakpoint in sales is the point at which your percentage rent equals your base rent. You can calculate your store’s breakpoint by dividing your base rent by the percentage your landlord wants to charge you. For example, let’s say your base rent is $4,000 a month. If you divide that number by 7%, it comes out to $57,142. This is the point at which you would begin paying percentage rent—when your gross receipts surpass this benchmark. At this point, you must pay 7% of each and every dollar in sales over the $57,142.

The main benefit of this is that both the Tenant and Landlord’s motivation is aligned since the Landlord does better when the tenant does better.


Compare listings