Keys to Negotiating a Triple Net Commercial Lease
Commercial leases are almost always set up so that tenants cover all expenses associated with the building, including property taxes, maintenance, insurance, utilities, and other common area expenses. This is generally known as a triple net lease. In this legal blog post, our Columbus business lawyer will cover the basics of a triple net lease, as well as keys to negotiating.
Intro to Triple Net Leases
The name triple net lease comes from the fact that the rent paid in the lease goes to the landlord net of insurance, taxes, and maintenance. In other words, the tenant covers these expenses. This is the most common type of commercial lease used because the landlord can see its bottom dollar in the lease, rather than factoring in expenses later. Less commonly used are double net and single net leases. In a double net lease, two of the three categories of expenses are covered by the landlord, and in single net only one. Business lawyers in Columbus, Ohio often field calls from new entrepreneurs who can be a bit shocked at how differently structured commercial leases are as compared to what they have experienced with residential leases.
Rent Structure Under a Triple Net Lease
Rent is typically broken down into two categories: base rent and additional rent to cover expenses like insurance, taxes, and maintenance. Base rent is typically a fixed amount per month, although some leases contain year over year increases or adjustments based on the consumer price index or some other standard.
Additional rent in a lease will typically contain several subparagraphs detailing how each expense will be allocated to the tenant. These expenses are often allocated according to the square footage of tenant’s leased space. For instance, if a tenant is occupying 25% of the leasable square footage of the building, 25% of expenses for the entire building will be allocated to this tenant.
Retail leases can be structured so that a percentage of sales is also paid to the landlord as rent. This is common in shopping malls and some shopping centers. While some tenants may not like the prospect of handing over a small percentage of its sales revenue as rent, this setup incentivizes the landlord to make efforts to continue to attract additional traffic to the mall or shopping center.
Negotiating a Triple Net Lease
Negotiating a commercial lease often depends on the respective bargaining power of the parties involved. The main factor will be the market for the given commercial space. If the space is in an ideal location and a number of businesses are clamoring to get into it, then a prospective tenant will not have much room to negotiate. If the tenant makes too many demands, the landlord can simply rent to another business. However, if this is a space that is only in moderate or low demand, the tenant may have much more room to negotiate for a higher build-out payment, more parking spaces, cheap or free signage, or additional parking spaces.
The second most significant factor is probably time. Does the landlord new to lease this space out as soon as possible? If so, does the tenant have an urgent need to get into the space? One side may have a leg up on the other simply depending on each party’s timeline.
Our Columbus Business Attorney Can Assist Your Business With a Commercial Lease or Other Business Transactions
Commercial leases are certainly much more complicated than the basics covered here. All businesses entering into a commercial lease should contact competent legal counsel to assist in drafting and negotiating the lease. Once a lease is signed, little can be done to renegotiate later. Contact our law firm to discuss potential representation and to determine if we can assist your business.