Are NNN leases common for smaller businesses?

6 Replies

@Matt Sterling triple net leases (in my area which is MA) are typically used for single tenant commercial properties or small multi-tenant retail strip malls. Basically single story buildings with little to no common area. It really doesn't matter the size of the company or how many locations they have.

My wife owned and operated a small retail business in Chicago for 8yrs. A mom and pop type business 2000sq ft with one location so nothing like a national chain. Her landlord who owned about half a dozen retail properties had her set up with a triple net lease. So it does  not appear to be exclusive to bigger national chains.

You can set smaller mom and pop type stuff up on NNN.

The key difference is the credit of the tenants, location of the area, and how they get financed is very different.

A national non bank lender might do a CTL loan on a national tenant with a guarantee. Mom and pop type stuff usually local banks only wanting 35% to 40% down instead of 25% because of credit risk. Mom and pop trade at much higher cap rates and usually require annual increases written into the lease at 2.5 to 3% annually. If you write a lease on a mom and pop smaller type property and do not put in proper rent increases and projected sell cap rate it is like originating a loan on bad terms where you have a hard time selling the paper later on.  

Hi Matt, check out this link to the AIR NNN lease for retail (they have other forms for other property types as well):

This is the "standard" form used in the Los Angeles area for retail tenants.

You should read the entire thing of course, but for the NNN provisions, check out sections 2.7-2.12 to understand the "common area" then read section 4.2 to understand the NNN charges on top of rent, then section 7 to understand the tenant's maintenance obligations.

If you're a landlord, this is a great lease.  If you're a tenant, not so good.