Industrial Real Estate Tenants and the Triple Net Lease

If you’re like many real estate tenants, you’ve heard about triple net rates – but you likely have no idea what they are. If that’s the case, you don’t understand how it impacts your lease negotiations. And that’s an issue.

Here’s the industry definition of a triple net lease – it’s a lease agreement that assigns payment of all property insurance, real estate taxes, management fees, common area maintenance and potential additional costs associated with the premises to the tenant. This payment is in addition to the base rent. Typically, the base rent and the triple net estimates are displayed together, making what is commonly referred to as a gross rent rate. Under the definition above, the tenant is responsible for paying the triple net costs, but it’s technically the landlord who pays them for the tenant and recovers his estimated costs monthly. In most circumstances, there is a year-end reconciliation at which time adjustments for under or overpayments are made. That’s how the landlord is assured that his asset is protected and the landlord’s superior purchasing power can be passed along to the tenant.

Does that clear up who actually pays the triple net fees? Here it is again – the landlord writes the check, and the tenant reimburses him for it. That’s how it works in most cases, because all landlords are different and some will go for additional charges if they can.

In the second instance, the true value of an experienced industrial real estate agent becomes crystal clear. Of course, additional costs do exist, including systems replacement recover and capital improvement recovery, for example. But while most triple net recovers are frankly non-negotiable, plenty of other costs are up for debate:

• Roof membrane • Parking lot maintenance • Landscaping & plant material • HVAC system replacements • Window system replacements

These items can all be addressed in triple net leases and they shouldn’t be overlooked. Consult with your real estate professional and be very clear about what is relevant to your transaction.

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