In a NNN lease, what does the investor have to pay for?

Question

From what I understand, the tenant pays for all maintenance, insurance, etc. But what does the investor pay for? If a new tenant comes in, who pays for the remodeling, new roof and such?

Joel Owens · Answer

In an absolute NNN single tenant lease the tenant pays for everything. Sometimes you might have to forward a property tax bill to them and other times they get it directly.

Now if it's NN it could be just roof landlord is responsible for, roof/structure, or almost everything like parking lot, utility lines, association dues, etc.

In that case it acts more like a gross lease disguised as a NN lease and gets away from the spirit of what NNN is all about and why investors buy them.

So my clients we look at absolute NNN, NN with roof warranty that transfers to new owner, ground lease. We stay away from onerous lease terms on the landlord with a NN lease.

The reimbursement is more for retail strip centers NNN where you have base rent per ft and then CAM. Management is usually not as intensive as say multifamily but still has work so need to make sure you are getting extra yield for return over a single tenant NNN property that is investment grade.

The amount of work with a retail center depends on the tenant mix of national, to regional, to mom and pop tenants.

As far a tenant going dark you the landlord will then have to entice another tenant to lease the space and everything is negotiable as to lease structure, landlord TI's, leasing commissions, etc. It's not just about getting a tenant in today and what cash flow but the longevity of the tenant and resale cap value with equity later on.

Hard to comment further without knowing exactly what you are trying to do.

Austin Martel · Answer

@Mike Brown - Tenant improvements are negotiable and that is ironed out during lease negotiations. In your example the landlord would pay for the roof and all structural improvement repair. HVAC maintenance is also negotiated. NNN leases typically have the tenant reimburse the landlord for taxes, insurance, utilities, repairs/maintenance, management, and roads/grounds maintenance in my Texas market. I hope that helps.

Ronald Rohde · Answer

Maint, insurance are divided via the lease. Remodeling is Tenant Improvements, we can still distinguish between common area improvements (LL cost) or tenant can pay.

Also consider if one party damages the portion, they would be liable regardless.

In a NNN lease, what does the investor have to pay for?

In a NNN lease, what does the investor have to pay for?

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