TRIPLE NET LEASE

Contact Neufeld Legal for commercial leasing legal matters at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com

A Triple Net Lease is a real estate lease agreement where the tenant agrees to pay not only the base rent and utilities but also the three major categories of property operating expenses: property taxes, insurance, and maintenance/repairs. It is one of the most common and sought-after lease structures, especially for landlords/investors looking for passive income and minimal management responsibilities.

The conceptual term "Triple Net" comes from the three primary expenses passed through from the landlord (lessor) to the tenant (lessee). In addition to the base rent, the tenant is responsible for:

• Property Taxes: The pro-rata share or full amount of real estate taxes assessed on the property by local government.Annual city/county/state property tax bills.

• Insurance: The premiums for insuring the property structure (building shell, roof, foundation, etc.). The tenant also carries their own liability and contents insurance.Property hazard and casualty insurance premiums.

• Maintenance & Repairs: All costs associated with the daily operation, repair, and replacement of the property's structure and systems.Roof repair, HVAC unit replacement, parking lot repaving, landscaping, common area maintenance (CAM).

These "net" expenses are typically paid by the landlord initially, and then reimbursed by the tenant monthly or annually, often based on a budget estimate that is reconciled at year-end.

For a real estate investor or landlord, the Triple Net lease offers distinct and attractive advantages:

• Predictable and Stable Cash Flow: Since the tenant is responsible for variable operating expenses, the landlord's monthly revenue (the base rent) is largely fixed and predictable. The risk of unexpected expenses eating into profits is significantly reduced.

• Low Management Responsibility: Triple net leases shift the burden of day-to-day property management, maintenance coordination, and expense oversight entirely to the tenant, making the property a near-passive investment. This is often referred to as a "bondable lease" or a "mailbox money" investment.

• Hedge Against Inflation: As property taxes, insurance premiums, and maintenance costs generally increase with inflation, the landlord is protected because the tenant absorbs those increases.

Triple net leases are most commonly used in the following scenarios:

• Single-Tenant Properties: The lease is most straightforward when a single business occupies the entire building. (i.e., standalone QSR restaurants, pharmacies, large retail boxes, or corporate headquarters).

• Credit Tenants: Triple net landlords highly favor tenants with a strong corporate balance sheet and credit rating (known as "credit tenants"). This provides high confidence that the tenant can meet the long-term obligations of both rent and expense reimbursement.

• Long-Term Leases: Triple net leases are typically structured for long terms, often 10 to 25 years, with multiple renewal options, aligning with the investor's goal for long-term, stable returns.

For knowledgeable and experienced legal representation in negotiating, reviewing and drafting lease agreements, and protecting your business’ legal rights thereunder, contact lease lawyer Christopher Neufeld at 403-400-4092 [Alberta], 905-616-8864 [Ontario] or Chris@NeufeldLegal.com.