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Triple Net Lease Recommendations

Triple Net Lease Recommendations

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.

Be sure to note all external areas, such as driveways, garages and parking lots, gardens and landscaping beds, as well as any employee picnic areas.  Document internal areas as well, such as elevators, lobbies, public bathrooms, dining areas and hallways.

  • Specifics regarding expected tenant improvement and structural repairs should always be documented in the Triple Net Lease agreement.

Building strength maintenance, such as earthquake retrofitting, is especially critical, since tenant safety is always a top priority.  Often, as a business grows, decisions must be made to renovate current spaces or to add to the use of the building.  Without careful planning, updates and changes could actually compromise the strength of the building.  Expectations should be documented in the lease arrangements, so that the tenant is required to notify and get approval from the owner before any major renovations are started.  Certainly, if the property owner is not aware of the tenant’s changes and renovations, they will not be aware of any possible structural damage to their building.  Even with a Triple Net Lease, property owners want to be sure that major changes and improvements are done correctly and with a focus on overall building safety.  It is important to note that building strength maintenance is generally considered to be regular Common Area Maintenance.

  • Include clear and concise documentation when it comes to roofing concerns.

The state and local building codes in California have been updated and strengthened over the last ten to twenty years in order to increase building strength and to protect residents, tenants and workers. There are additional regulations regarding roof maintenance in California.  Re-roofing is necessary periodically, so it would definitely be an important CAM requirement to document in the lease agreement.  Concrete tilt-up buildings may also have roof condensation problems that should be addressed in the lease agreement.  Any roof collapse, including those caused by condensation issues, is a safety issue that can have an immediate and negative business impact on the tenant.  Roof ledgers and insulation issues are generally considered to be part of a building’s basic structure, so the general point of view regarding roof condensation in a Triple Net Lease agreement is the same as with other structural repairs and earthquake retrofitting.

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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