What A Triple Net Lease Really Means For A Tenant
A low base rent that transfers costs and risks most tenants have not priced.
In a triple net lease the tenant pays base rent plus real estate taxes, insurance and maintenance. The base rent is correspondingly lower, which is why the structure looks attractive in a comparison of headline numbers.
The relevant question is what the total cost of occupancy will be, and how much of it can change without your agreement.
Taxes are the volatile item
The tenant pays property taxes, or a share of them. Property assessments change, and tax rates change, and neither is within the tenant's control.
A reassessment following a sale of the building can increase the tenant's cost substantially in a year with no change to the space. Ask what has happened to the assessment historically, and whether the lease caps annual increases in this component.
Maintenance and the boundary of responsibility
The critical drafting question is what counts as maintenance and what counts as capital replacement. Maintaining a roof is different from replacing one, and the difference can be a very large number.
A well-drafted tenant position excludes structural elements and capital replacements, or amortises them over their useful life so a tenant with three years remaining does not fund a twenty-year asset.
Insurance
The tenant carries insurance to specified limits, and the lease will require the landlord and its lender to be named. Get the requirements to your broker before signing — the specified limits are sometimes expensive to obtain for particular uses.
Common area charges
In a multi-tenant property the tenant pays a share of common costs. Examine the definition of the pool, the basis for calculating your share, whether there is a cap, and whether you may audit the landlord's calculation.
An audit right is standard, frequently omitted, and worth insisting on.
The comparison to make
Never compare a net rent with a gross rent. Build the full annual occupancy cost under each structure, with a realistic allowance for increases, and compare those. That comparison is what the negotiation should be about.
This is general information, not legal advice. Speak to a qualified New York attorney before acting on any of it.