What You Need to Know About NNN Investments & Lease Clauses

Apr 17, 2019

A triple-net (NNN) lease investment gives you total ownership of commercial property and reliable, passive income, potentially for decades. As the landlord, you simply collect monthly rent – you are removed from any building or property responsibility. This is made clear through the terms of the lease, which are detailed and strengthened by customized triple-net lease clauses.

Most often, a NNN tenant is a national corporation like McDonald’s or Dollar General. These highly-recognized, multibillion-dollar corporations prefer an Absolute Triple-Net Lease for total control over all building and property-related expenses above rent, net taxes and insurance, and common area maintenance charges (CAM). This also includes things like capital expenditures, lease management, and repairs. These detailed lease terms are spelled out in lease clauses to ensure nothing is left to chance.

Applying for a Lease Agreement

Understanding the Corporate Lease

All corporations have a form lease, which cannot be negotiated. The only situation where you are negotiating a lease would be a sale-leaseback involving a fast food franchisee. As the property owner or “Landlord” on the lease, you will draft the terms of the lease with the help of an experienced NNN lease attorney.

It is important to also note that a big misunderstanding in the NNN lease arena is that all leases are absolute NNN, which is simply not the case. Often, corporate leases from Starbucks, Autozone, DaVita, and others, are NN leases where the landlord bears some responsibility. This is where an experienced Net-Lease Advisor plays a crucial role. Our job at Westwood Net Lease Advisors is to make sure our clients understand the landlord’s responsibilities of each lease before entering into a transaction.

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Absolute & Triple-Net Lease Clauses

The Basics: Triple-net lease clauses define every major and minor lease detail, starting with the definition of your NNN lease and basics like property address, amount of security deposit and rent, and length of lease (10-25 years). They also include other lease terms like direct depositing rent and the day it’s due, as well as rent adjustments every so many year, how those adjustments are determined, and renewal options.

Expenses above CAM: Operating and maintenance expenses and restrictions are spelled out through clauses – security, parking lot repaving, and signs, snow removal, pest control, storm cleanup, window washing, utilities, Wi-Fi, management fees, and more. This list can be lengthy depending on the type of property.

Capital expenditures: With a NNN lease, new HVAC units, windows, roofs, reconstruction, remodeling, and building improvements are paid for by the tenant, which is made clear in a dedicated lease clause.

Insurance, taxes, opt-out, bankruptcy: Lease clauses also define the very important requirements for your tenant to procure the correct comprehensive liability and risk insurances and their minimum coverage amounts; the property taxes they are responsible to pay, early termination or “opt-out” clauses and the procedures and fines for early termination. Bankruptcy, the demise of property, (if something should happen to the building, causing its demise), property damage, and all fees and fines related to any code compliance, penalties, or issues that may arise are also categories on the lease.

Acknowledgment Clause: All leases end with the acknowledgment clause, where signatures make the lease legally binding.


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Customized Lease Details & Industry-Specific Clauses

For each industry and type of property, there will be very specific lease requirements and additional clauses that are unique. For example, ISO for manufacturing and FDA for pharmacies, as well as city, state, and federal requirements.

When you invest in a triple-net lease property, the lease is drawn up or reviewed by a specialized attorney who knows the rules and provisions within the lease and helps you sort through the details. This ensures your needs and goals are met and you are protected. Though it seems complicated and possibly overwhelming, most corporate NNN leases are fairly straightforward, and you will have a professional team guiding you throughout the process.

Westwood has a national reputation for being one of the top net-lease brokerage firms in the country with over $2 billion in commercial real estate closings since its inception. We work with a team of advisors, attorneys, lenders, title companies, and others who streamline your NNN lease investment process and ensure there are no hidden clauses in the lease that can lead to surprises later.

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To Wrap it Up – Triple-Net Lease Clauses Benefit the Landlord

At Westwood Net Lease Advisors, we prefer to help our clients with NNN investments with “absolute net-leases” for many reasons. There is peace of mind and security in leasing to strong credit, national companies like Wendy’s, 7-11, and Walgreens, for 10-25 years. Not only are these corporations pros at NNN leases, they prefer straightforward clauses and a swift negotiating process, care for your property in its entirety, and pay rent on time. No worries or hassles for you.

Life has been so much easier for us since we bought our Walgreens location. The Triple A location Westwood Net Lease Advisors found for us has given us land value appreciation that we didn’t expect. A trade saving us taxes and giving a good return is one thing, but the great appreciation of value is a wonderful benefit. Thanks for directing us into value rather than the higher cap rate. Now we know that real estate is indeed all about location, location, location.” – Sara Tyswell, Nebraska

Partnering with a trusted buyer’s advisor at Westwood Net Lease Advisors makes for a smooth process – from the property search to closing – and alleviates the unknowns. Our highly experienced, the reputable team is here to help you navigate the often complex process with ease, at no cost to you. Contact us today for your no-obligation consultation. 314-997-5227


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