With residential properties, the person living in the property usually has very few obligations outside of paying rent. They may also have to cover the utilities, but some landlords will even include these in the cost of rent. The landlord will also be obligated to make repairs and do standard maintenance when it is necessary.
But what about commercial tenants? Should they be in charge of taking care of the building and maintaining it since they are going to be using it in such a dedicated and specific way? Or is it up to the landlord to do this type of maintenance?
A triple net lease
In commercial real estate, what you will often find is that people use a triple net lease. This starts with the idea that the tenant has to pay rent and utilities, but then expands it to include other financial obligations. These include things like real estate taxes, insurance on the property and the maintenance and upkeep that are needed.
Of course, there are other types of “net” leases that can also be used on commercial properties. For example, a single net lease just asks a tenant to pay property taxes along with rent and utilities. With a double net lease, property insurance is added in. A triple net lease essentially transfers almost all costs into the obligation of the tenant.
Why would you do this?
If you’re investing in commercial real estate, you may decide to do this simply because it makes it easier to own the property. You don’t have to worry about any of the financial issues or other things that may occur. The person running the business can simply take care of all of the details, and you can profit off of your investment.
That being said, there are also landlords and investors who are not interested in using these leases because they want to have a greater level of control over the property that they purchased. All of this is possible, but you just need to know what your goals are and what legal steps to take to make them a reality.