Hell or High Water Real Estate
Common Conversation regarding having rental property: Why don’t you get into the rental business?
I don’t want to deal with tenants! Some don’t pay, then if something breaks you have to fix it, and of-course it would probably happen at the most in-opportune time, like when I’m on vacation
Triple Net Leases are so good, that the slang term for them for real estate professionals is a “Hell or High Water Lease” Meaning coming hell or high water, the tenant is going to continue to pay for everything, and you are just going to sit back and collect your check every month!
Sometimes this slang-term also refers to a type of triple net lease which requires the tenant to rebuild after a casualty, regardless of the adequacy of insurance proceeds, and to pay rent after partial or full condemnation. These leases are not terminable by the tenant, nor are rent abatements permissible. The concept is to make the rent absolutely net under all circumstances, equivalent to the obligations of a bond: hence the “hell-or-high water” moniker.
This is a brief summary of what the maintenance clause will look like in a triple net lease contract:
Z Company has signed a new 15 Year NN Lease with a projected Rent Commencement Date of 7/1/2007. The Lease includes 4, 5-Year options to extend with 10% rent increases in each. Z Company pays real estate taxes directly, is required to maintain general liability insurance additionally Z Company is required to reimburse Landlord for insurance policy premiums related to fire and property damage. Landlord shall be responsible for all HVAC repairs and replacements during the first year of the Lease; thereafter Z Company shall be responsible for all repairs and replacements up to $500 per occurrence and no more than $1,000 annually. Because the parking lot is concrete, Z Company is responsible for the repair and maintenance.
The maintenance on the HVAC is required because usually, you are acquiring a new building and their might be some problems with the initial installation. The good thing is that whoever installed the HVAC will usually do the repairs for free. Additionally, the HVAC unit will probably be under-warranty so this is not a significant risk at all!
When considering lease options as a landlord or tenant, the full terms of the lease should always be read before committing. In the case of a triple net lease, make sure that all the terms are clear and agreed upon by both parties. Consulting a lawyer who specializes in real estate is an excellent idea.
So go get’em, come hell or high water, I think Triple Net Leases are a good deal for any serious real estate investor, that wants to break into the inter-sanctum of commercial real estate.
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