In a triple net lease, the tenant pays property taxes, maintenance costs, insurance, and, of course, the rent. In the world of commercial properties, it’s very common. Since the tenant takes on most of the responsibilities, it leaves landlords with one main question: what does landlord pay in triple net lease? Let’s break it down in simple terms so you know exactly what’s on your plate.
Main Takeaways
- A traditional triple net lease has the tenant pay for property taxes, insurance, and maintenance, while the landlord handles major structural repairs and the mortgage.
- To avoid disputes and protect their investment, landlords must draft a detailed lease that clearly defines all responsibilities and includes oversight clauses.
- While these leases are popular for commercial properties, landlords still face risks like tenant default, unexpected structural costs, and periods of vacancy.
What Does the Landlord Pay in a Triple Net Lease?
As our Northern Virginia property managers can tell you, landlords do have their dues to pay with a standard triple net lease. In most standard triple-net leases, you’re still responsible for big-ticket structural repairs, like replacing a roof or fixing the building’s foundation. You also take care of mortgage payments, property management fees, and other costs tied to owning the property. Of course, this description (and everything in this article!) represents what commonly happens, but what you experience will depend on your lease terms and local laws.
What Does the Tenant Pay in a Triple Net Lease?
From what we’ve observed, managing commercial properties tends to get a lot easier with a standard triple net lease. Usually, most of the ongoing costs shift to the tenant. But what exactly do they cover?
Typically, in a standard triple net lease, the tenant covers the property taxes, maintenance expenses, and insurance. They can choose their own insurance provider (as long as it meets the lease requirements), hire their preferred maintenance professionals, and handle their utilities. These qualities make triple net leases very different from gross leases.
That said, while the tenant runs most of the day-to-day operations, the landlord still usually has the right to oversee. In other words, they make sure the property is well-maintained and the lease terms are followed.
Which Repairs Are the Landlord Still Responsible For?
In a standard triple net lease, your repair duties will usually focus on keeping the building safe, habitable, and legally compliant. This involves handling structural work, meeting building codes, and fixing any issues that could risk the property’s value. For example, you may have to replace outdated wiring or upgrade the plumbing. So, you should be sure to budget appropriately for these expenses and find ways to minimize those costs.
How to Structure a Triple Net Lease Properly
Getting your lease exactly right is critical. When you get it wrong, you risk losing a good tenant, or worse, ending up in legal entanglements. We always encourage landlords to be clear, thorough, and compliant from the start. With that said, let’s take a look at tips for structuring your lease:
2. Clearly define all expenses:
Your lease should explicitly list each cost the tenant is responsible for, from property taxes, to building insurance premiums, to common area maintenance (CAM) fees. Even though this is the defining feature of a triple net lease, spelling it out removes any potential for misinterpretation. Specify exactly when and how these payments are due, whether it’s monthly with the rent or as a separate annual or quarterly invoice.
2. Set repair and maintenance boundaries:
It is crucial to differentiate between the tenant’s daily upkeep and your responsibility for major repairs. Assuming your lease has the typical triple net lease division of responsibilities, the lease should state that the tenant is responsible for all routine maintenance, such as plumbing clogs or lightbulb replacements. On the other side of the coin, the lease should state explicitly that the landlord will handle the bigger structural repairs. For instance, you should state clearly that you’ll handle ones related to the roof, foundation, and exterior walls. This can help you protect your long-term investment.
3. Include insurance requirements:
State the exact types of insurance the tenant is required to carry. Usually, their roster should include general liability and property insurance. Also, the lease should specify the minimum coverage amounts for each policy to ensure all properties get protection. In addition to that, you must require the tenant to provide proof of this insurance, like a certificate of insurance, before they are allowed to move in.
4. Add oversight clauses:
Give yourself the contractual right to inspect the property at reasonable times (with prior notice, of course). Also, be sure to note that you must approve any significant work the tenant plans to perform. This oversight clause ensures they have to have qualified contractors do any major construction, renovations, or repairs, and according to safety and quality standards. This way, the tenant can’t make changes that could devalue the property or create future liabilities.
5. Work with an experienced property manager or attorney:
Professionals can help you navigate the twists, turns, and nuances of commercial real estate law. They can make sure your lease is enforceable and hits all the necessary points. Furthermore, they can review the lease’s language to avoid common pitfalls. Most importantly, they can ensure your lease is compliant with all local, state, and federal regulations. This way, you can be sure you’re checking all the boxes.
Types of Properties That Use Triple Net Leases
Types of Properties That Use Triple Net LeasesTriple net leases aren’t generally as common for residential properties. After all, tenants expect the landlord to handle most maintenance and costs. In commercial real estate, it’s a different story; they’re a go-to for lower-hassle investments. You’ll most often find them in:
- Retail properties – like standalone stores, strip malls, shopping centers
- Office buildings – like single or multi-tenant
- Industrial properties – like warehouses or factories
- Medical offices – like clinics, dental offices, urgent care centers
- Restaurants & QSRs – like especially single-tenant fast-food buildings
Common Mistakes Landlords Make With Triple Net Leases
We’ve seen too many landlords make avoidable mistakes with leases. These missteps put money down the drain or worse–put them into the realm of legal non-compliance. Here are some of the biggest ones to avoid:
Not spelling out every expense in writing: Even if you assume the tenant knows they’re responsible for taxes, insurance, and maintenance, you will want that obligation proven on paper. So, always place these details in the lease with clear-cut timelines and payment terms. This removes any room for misunderstandings.
Leaving repair responsibilities too vague: If the lease doesn’t spell out which fixes are on the tenant and which ones you cover, you might find yourself handling something the tenant should have taken care of. Or, something could be left falling in the cracks altogether because each party assumes the other has it covered. So, leave nothing unsaid with no room for reading in between the lines.
Skip regular property inspections: Speaking of assumptions, many landlords just assume the tenant will keep everything in good shape. This tends to be a huge miscalculation. We can tell you for certain that you will never truly know whether everything is in order until you see it with your own eyes. That’s why you still need to check in to protect your investment and ensure the property meets safety and code requirements.
Failing to review the lease regularly: Being complacent about your lease can hold you back. Market conditions, property values, and operating costs all can change over time, so your lease terms should keep up, too. Sticking with outdated terms could mean you’re leaving money on the table.
Thinking About a Triple Net Lease for Your Property? We Can Help!
To answer, “what does a landlord pay in a triple net lease,” landlords are typically responsible for certain costs, like major structural repairs, mortgage payments, and capital expenditures. To protect their investment, landlords must ensure the lease is clear-cut. It should define all expenses, sets repair boundaries, includes oversight clauses, and requires insurance.
That said, drafting an airtight lease is easier said than done. That’s why so many landlords leave it to the professionals. At Bay Property Management Group, we can iron out the finer details of your agreements so that you’re protected in the eyes of the law–and your bank account. Contact us today to see how we can help you stay covered.
