Absolute NNN Lease - Where to find?

8 Replies

Hello - I'm hoping the community might be able to point me in the right direction. Would anyone be willing to share or point me to a place were I can review examples of strong absolute NNN leases that I can build from? My father passed away and owned a couple buildings and gyms. They are separate entities but want to help my mom establish strong NNN leases between the entities in the event that she wants to sell the gyms but keep the buildings. Any help/direction would be greatly appreciated!

Originally posted by @Matt Melhus :

Hello - I'm hoping the community might be able to point me in the right direction. Would anyone be willing to share or point me to a place were I can review examples of strong absolute NNN leases that I can build from? My father passed away and owned a couple buildings and gyms. They are separate entities but want to help my mom establish strong NNN leases between the entities in the event that she wants to sell the gyms but keep the buildings. Any help/direction would be greatly appreciated!

You should get this from a local commercial broker and also local commercial real estate attorney. Every state is different regarding commercial lease laws and their interpretations of absolute lease language.

 

I would suggest an Attorney as well. We have Boiler Plate - "Fill in the Blank" leases that we use when a Landlord can't *is too cheap* to hire an attorney to draft their own but they are always designed to be "fair to both sides." If you want a document that is going to protect your Mother's interest, spend the cash and hire a good Attorney. 

I also agree with the attorney route. You can always use that lease as a “fill in the blanks” later on. That’s what I did. I paid the attorney once and now mimic his process. 

Good luck, and sorry to hear about your dad.

Thanks everyone. I planned on going the lawyer route at some point wouldn't want to use anything canned that might get challenged per state laws. That said, are there any specific recommendations around types of clauses that you believe are critical to a strong absolute NNN agreement? When I meet with the attorney I'd like to ensure all my bases are covered. Thanks again!!

We have an MO attorney and NNN leases, what were you previously using? are all the leases expired?

Main issues depend on your priorities, are buildings fully leased? mortgage? age of building? who does your property management? history of complaints?  These are the questions I start with before identifying "types of clauses".

(owned a couple buildings and gyms)

What does this mean?

So he was a gym operator and owned the real estate for 2 locations? Since he passed away WHO is running the gyms now?

Gyms are notorious for going out of business. When my clients buy STNL or MTNL we avoid gyms like the plague. It's a high volume special game where income fluctuates and machines get worn out and old and not enough cash flow to keep updated. The national companies with corporate guarantees tend to have stronger balance sheets and do better.

Even if your dad owned the businesses his tax accountant should have mentioned possibly have a lease in place to show income and take deductions off of his business. What you can get for the businesses and the real estate will depend on a ton of factors and how well books were kept and in what format. 

If you need to recapitalize you could look at sale leasebacks. Again business records need to be pristine and show high profit margins to usually garner any interest. Working out for many is kind of and on again and off again cycle versus other types of consumers uses.

When crafting a NNN lease if you ever want to sell you have to think of what the end buyer would want to see and not just what would be optimal for your business operations in the moment.

Your mom might not have the time or energy to keep track of gyms. It might be better to 1031 into something more passive for a national tenant and income stream where you mom likely doesn't have to do anything but collect a check.  

Correct, they own the buildings that the gyms operate in. The gyms are a national franchise and their two locations are doing very well. They make regular investments in the equipment and do a complete design refresh every 5 years.   i appreciate the feedback. 

Sorry to rehash this but I'm having trouble following. Are you're saying the property currently has credit tenants in place but you want to draft your own NNN lease agreements?

Do you have a copy of the current lease agreements and have you reviewed them? Consider that national credit tenants will at the very least dictate much of the lease terms. Most likely, they will not be using a landlord's standard lease format but rather a tenant-friendly lease agreement with their own provisions and terms. 

Of course you can negotiate but be prepared when  procuring a nationally recognized name as a tenant.  

[no legal,tax or financial advice herein]