A Triple Net Office Lease is a Lease Agreement between a Landlord and a Commercial Tenant (an entity or individual operating a business upon the Premises). A Triple Net Office Lease is usually used to lease a portion of an office building, or in some cases, an entire office building. A Triple Net Office Lease should always be in writing and signed by the Tenants and the Landlord. All the parties to the Lease should take the time to read the Lease before it is signed.
A Triple Net Lease gets its name from the fact that the Lease is “triple net,” (thus the three “N’s”). A Triple Net Lease requires the Tenant to pay three separate items in addition to rent: i) Taxes, ii) Insurance, and iii) Maintenance. The Tenant is required to pay the “net amount” of these three costs, which is how the Lease acquired the name “Triple Net Lease.”
Oftentimes in a Triple Net Lease, because the Tenant is covering costs that in other Office Leases are covered by the Landlord, the rent charged to the Tenant will be lower in a Triple Net Lease than it would be in a standard Gross Office Lease.
Because a Triple Net Lease provides the Landlord with no responsibilities in regards to building maintenance and upkeep, many Landlords prefer this type of Lease Agreement to any other Office Lease.
Alternatively, many Tenants prefer a Triple Net Lease because, being responsible for taxes, insurance, and maintenance allows a Tenant to run its business in the building as if it were the owner of the building. In other words, a Triple Net Lease alleviates the amount of time that a Landlord will spend looking over a Tenant’s shoulder.
The basic provisions of a Triple Net Office Lease include the following:
- RENT: The lease language regarding rent specifies i) the amount of rent to be paid each month, ii) how the rent is to be paid (in what form? To whom? Where?), iii) on what day of the month the rent needs to be paid, iv) whether there is a penalty for the late payment of rent, and v) whether the Landlord is allowed to increase the Tenant’s rent, and if so, when?
- UTILITIES: The lease language will specify how much the Tenant is responsible to pay for utilities such as water, garbage disposal / pick-up, sewer, electricity, gas, and cable.
- SECURITY DEPOSIT: The Landlord normally requires the Tenant to pay a security deposit when the Lease commences. This deposit is intended to protect the Landlord in the event that the Tenant causes any damage to the Premises beyond normal wear and tear. When the lease term ends, most state laws require that the Landlord return the security deposit to the Tenant within one month. If the Landlord is required to retain some portion of the security deposit due to damage to the Premises committed by the Tenant, the Landlord is required to provide the Tenant with a written notice specifying the exact reasons.
- TERM: A Triple Net Lease will specify a fixed period or “Term” during which the Tenant can occupy the Premises, and the Landlord cannot increase the rent. The Term can extend for any length of time that the parties agree on. Most Triple Net Leases require a minimum term of six months to a year. Some Triple Net Leases will allow a Tenant to “hold over” when the Lease term expires on a month-to-month basis. Other leases have an “automatic renewal” provision. If this is the case, both Landlord and Tenant should be aware of the provision so that neither party gets stuck in an “automatic renewal” that it does not want to be in.
- DEFAULT: A Triple Net Lease will also specify the various ways in which a Tenant can commit a “Default.” A default is a basic violation of the lease, and the most common default is the failure to pay rent on time. When the Tenant commits a default, the Landlord has the option to deliver to the Tenant or post on the Premises a 3 Day Demand for Compliance / Payment or Possession. This Demand gives the Tenant 3 days to fix the violation and restore its tenancy to good standing. If the Tenant cannot or fails to fix the violation, then the Landlord can initiate legal proceedings to evict the Tenant from the Premises. The Demand may need to allow for more than 3 days if state law requires or if the lease agreement itself provides for a longer period.
When the Tenant moves out of the Premises, he should always take photographs of the condition of the Premises for his records. The Tenant should also leave a forwarding address with the Landlord. If the Landlord does not have the Tenant’s forwarding address, he may not be required to return the security deposit to the Tenant. The Landlord has no legal obligation to spend his time and money tracking down the Tenant.