If you are a landlord or tenant in Australia, you’ve probably heard about triple net lease. But if you haven’t, or are wondering what it is, we’ll explain what it is and list some of its main benefits and drawbacks.
What Is It?
Though it might sound otherwise, this type of lease is less complicated than it sounds. Also known as an NNN lease, a triple net lease is an arrangement where the tenant agrees to settle either a portion or all ongoing expenses, on top of the base rent, of the property he or she has leased. These expenses include maintenance costs, building insurance, and property taxes.
Benefits of an NNN Lease
There are a couple of benefits a tent can enjoy from these type of lease. These benefits include:
Lower price point for the base lease
The tenant who has signed an NNN lease agreement will enjoy a lower monthly rent than one who signed a gross lease agreement. This is because he or she will be paying for at least some of the maintenance expenses, the building’s insurance, and the property’s taxes.
Save Money Through Sharing Expenses
NNN leases can help tenants save some money they could have spent on ongoing expenses by sharing these expenses with other tenants leasing on the same property. If the property you are leasing is a successful one with low vacancy rates, the maintenance costs, insurance premiums, and taxes will be divided by a greater number of fellow tenants. So the greater the number of tenants in the property, the lesser you’ll have to spend on ongoing costs while you re still enjoying a lower monthly base rent.
Also, don’t forget that if you are a tenant in a newer building, you won’t have to spend much on maintenance as most of the fixtures will still be new.
Can offer leverage during lease negotiations
The particulars of the NNN lease can be used by a tenant during lease negotiations as a source of leverage. Since the particulars of this lease agreement dictate that you’ll be paying for ongoing costs, the landlord will need to trust that you’ll be able to do it. For this reason, you can use your creditworthiness to negotiate a lower base monthly rate. The landlord will likely favor you and lower the already low rate because you have a solid track record of financial responsibility.
Disadvantages of an NNN Lease
An NNN lease also has some disadvantages. Here is a brief discussion of the main one:
Tenant can incur substantial costs
Because it isn’t possible to tell exactly what will happen in the future, you stand the risk of having to pay enormous sums of money to cover maintenance costs incurred from substantial damage to the property.
