If a commercial property owner decides to lease out a building to a business entity using a Triple Net Lease, the tenant is responsible for more than just the rent and utilities. In most cases, Triple Net Lease tenants are also responsible for real estate taxes, building insurance. and the cost of any necessary building repairs or maintenance (the three “nets”) during the term of the lease. This type of lease is typically used for freestanding commercial properties. The length of the lease can vary, but many last for at least 50 years.
With a Triple Net Lease, the commercial property owner/landlord usually has no responsibility for any of the costs associated with the building’s maintenance. In fact, the property owners do not even want to be involved in any issues regarding building maintenance and upkeep, so the Triple Net Lease can be a win-win situation for both the property owner and the tenant. The building can bring in a high level of income for the owner while the tenant keeps it in good condition and handles any necessary structural and safety improvements. With a Triple Net Lease, the tenant has many of the advantages of ownership, including control over the property, without the large investment of capital that is necessary for a new acquisition.
Most commercial property owners are quite happy to have the insurance, taxes and Common Area Maintenance (CAM) handled by the tenant. Issues may occur, though, if the tenant neglects regular, basic maintenance. Before this type of lease is drafted, it is often suggested that an initial baseline inspection be completed to document any existing conditions. Typical Triple Net Lease agreements also document that annual maintenance inspections will be conducted. Future disagreement may occur if maintenance issues and expectations are not specifically defined under the Common Area Maintenance portion of the lease agreement.
In any type of lease arrangement, clearly defined responsibilities protect the interest of each party. Anything out of the ordinary should be completely documented in the Triple Net Lease, including anything related to various state and local structural maintenance codes. As expected, property owners will certainly want their investment protected and well-maintained, with insurance premiums and taxes paid in a timely manner. On the other hand, tenants must focus on their business; they will not want structural defects and liabilities to hinder day-to-day operations. It is important for both parties to ensure that the lease agreement spells out all terms and responsibilities clearly.
Sometimes it is difficult to know where to begin when considering a Triple Net Lease. The following recommendations are just a few tips regarding Common Area Maintenance for a commercial Triple Net Lease agreement:
- All common areas should be documented in the lease.
Specifics regarding expected tenant improvement and structural repairs should always be documented in the Triple Net Lease agreement.
Include clear and concise documentation when it comes to roofing concerns.
When agreements are well-defined and thoroughly documented, particularly with a Triple Net Lease, both tenants and property owners can be assured that their interests are protected and expectations will be met. While the property is the owner’s responsibility, the people actually using the building will have the greatest impact on its overall care and maintenance. The professional team at Saunders Seismic Commercial Retrofit can provide a complete building inspection that will meet the needs of both the property owner and the tenants. In addition, Saunders Seismic Commercial Retrofit has experienced crews that can address structural maintenance, earthquake retrofitting, and roof condensation conditions. To get more information on the requirements for building strength in California or regarding what to include in a Triple Net Lease, call Saunders Seismic Commercial Retrofit today!
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