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What is a Triple-Net Lease? (NNN)

A Triple-Net Lease (NNN lease) is a type of commercial real estate lease agreement in which the tenant agrees to pay all three "nets" - property taxes, building insurance, and maintenance costs - in addition to the base rent. In a Triple-Net Lease, the tenant assumes significant responsibility for the property's operating expenses, making it a popular choice for landlords and investors in commercial real estate.

Key features of a Triple-Net Lease include:

1. Operating Expenses: In addition to the base rent, the tenant is responsible for paying the property taxes, building insurance, and maintenance costs associated with the leased property. This means the tenant assumes most of the property's operating expenses, relieving the landlord of these financial responsibilities.

2. Passive Income for Landlords: For landlords, a Triple-Net Lease can provide a stable and predictable income stream without the burden of property management and operating costs.

3. Long-Term Leases: Triple-Net Leases are often long-term agreements, typically spanning several years. This stability benefits both tenants, who have a predictable occupancy cost, and landlords, who can rely on steady rental income.

4. Commercial Properties: Triple-Net Leases are commonly used in commercial real estate, particularly for single-tenant properties like retail stores, office buildings, industrial facilities, and freestanding restaurants.

5. Tenant Control: Because the tenant is responsible for property maintenance, they have more control over how the property is managed and maintained, allowing them to tailor the property to suit their specific business needs.

6. Rent Escalation: Some Triple-Net Leases include rent escalation clauses that allow the rent to increase periodically to keep up with inflation or changes in operating costs.

It's important to note that Triple-Net Leases are typically more complex than other types of commercial leases, and both tenants and landlords should thoroughly review and negotiate the terms before entering into such an agreement. Additionally, tenants should carefully consider their ability to cover the property's operating expenses, as NNN leases can expose them to greater financial risks compared to other lease types.

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