Shopkeeper with six children: “You can’t raise my rent. I have a lease.”
Landlord with six buildings: “It’s a triple net lease.”
Shopkeeper: “What does that mean?”
Landlord: “It means I can raise your rent.”
Let’s talk about triple net leases.
With a triple net lease, the tenant pays for (1) repairs and maintenance; (2) taxes and insurance; and (3) inflation adjustments in the rent, usually based on the annual increase in the consumer price index, or “CPI”.
Let’s say you want to open a candy store and you need 800 square feet of space. You find two 800 square foot spaces across the street from one another. The leases for both spaces require that the tenant pay for repairs and maintenance other than the foundation and roof. This way, if the building collapses due to an earthquake or nuclear attack, the tenant is not responsible. Both have an annual CPI increase.
Mr. Greedy is renting his space for $2.00 per square foot gross rent, i.e. the landlord pays the taxes and insurance. Mr. Meany is renting his space for $1.75 per square foot triple net, i.e. the tenant pays for the taxes and insurance. Taxes are $2,400/yr; and insurance is $600/yr. Who is offering a better deal?
Mr. Greedy.
800 sq. ft. @ $2.00/sq. ft. = $1,600/mo. 800 sq. ft. @ $1.75/sq. ft. = $1,400/mo plus (1/12 of $3,000 = $250) = $1,650/mo.
You say, “I didn’t need a lawyer to tell me that.” We say, “All right, but do you know what atornment means in a lease?” You say, “No, what does it mean?” We say, “Hah! We know, and you don’t.”
This article is intended only to give an overview of triple net leases. It is not intended as legal advice. For legal advice you should consult your attorney.
