Single, Double & Triple Net Leases
As a landlord/rental property owner, you are already familiar with the basics of a general landlord/tenant lease agreement. The contract has been tailored to fit your personal requirements, entailing the expected monthly rent fee and due date, the specific utilities you expect your tenant to pay and restrictions regarding pets, smoking, etc. It's straightforward and practical in nature and it gets the job done. However, there are a myriad of lease options available to you as the owner/landlord, three of which are as follows:
Single
The single net lease entails you as the landlord/owner requiring your tenant to pay your rental property taxes. This sounds good in theory; however, you would then assume responsibility for all other expenses including utilities, maintenance/repairs, insurance and everything else a tenant would need throughout the whole of the lease term. You would collect a lower monthly rent fee as your renter would finance your property taxes. In addition, you are financially responsible if your renter misses a tax payment and you could incur possible fines and miscellaneous charges as a result. If you are contemplating a single net lease, it is best to include your property taxes in the amount expected from your renter each month in order to ensure your taxes are paid in a timely manner.
Double or Nothing
Commercial real estate entrepreneurs are known to utilize the double net lease, requiring renters to pay rent which includes insurance and property taxes. This can be advantageous from a marketing perspective as it allows commercial investors the opportunity to advertise a lower base rent while bearing the burden of all other costs pertaining to maintenance. In larger, multi-business office complexes, for example, commercial landlords will assign tax and insurance fees in accordance with the varying amounts of square footage rented out to each individual tenant.
Triple Hitter
The triple net lease is great for landlords wishing to alleviate risks pertaining to a net lease. In fact, the renter is assigned the expense of repairs and maintenance, taxes, insurance and structural issues. While the base rent is usually lower, the monthly amount paid out by the tenant is generally much higher by the time you calculate the remaining financial obligations outlined in the lease. The triple net lease is bondable and protects the landlord/owner in the event that a renter tries to break the lease due to unexpected or higher-than-usual expenses. Most triple net leases are generated for tenants wishing to rent for a minimum of ten years.
Bottom Line
Leases are all about risk. How much do you, as the landlord/owner, want to assume? How much of the risk are you hoping to place on your tenant? Would a gross lease, charging a monthly flat fee, be better or easier? It is always wise to consult with your property management company, financial advisor or experienced rental property owner when contemplating a lease change or alternative.
