Modified Gross Lease vs Triple Net (NNN)

Real estate leasing agreements come in two types: modified gross and triple net leases. These two forms of leases are widely employed when renting a commercial space. They each have their method of dividing costs between the renter and the landlord.

You should be aware of these two terms before signing a lease agreement. Everything you need to know about modified gross leases and triple net leases may be found in this article.

WHAT IS A MODIFIED GROSS LEASE?

A modified gross lease is an agreement where the expenses are shared between the Tenant and landlord. In a modified gross lease, the Tenant is responsible for paying base rent in addition to some operational costs like utilities, interior maintenance, minor repairs, and janitor cost. On the other hand, the landlord I responsible for paying all the operational expenses like building taxes, exterior maintenance, extensive repairs, and property insurance.

Some modified gross leases include an expense stop. This implies that the cost of the building’s operating expenses is fixed for the first year of the lease. Any increases after that are passed on to the Tenant.

MODIFIED GROSS LEASE: PROS & CONS

PROS:

1. The corporate Tenant has better budgeting control over the expenses that directly affect their business operations, such as salaries, rent, business taxes, etc. This is because the landlord bears the maintenance costs.
2. Corporate tenants prefer it modified gross leases since they are not liable for the building’s upkeep. This allows corporate renters to concentrate on the most significant aspects of their operations.
3. A modified gross lease allows the complete Tenant control over the bills they are responsible for, such as energy. A modified gross lease allows landlords to keep control of their properties. It enables them to keep the property in proper repair and avoid maintenance disputes with careless tenants.

CONS:

1. Tenants with a modified gross lease have less control over the look of the building. Because landlords are responsible for maintaining the appearance of the building, if the landlord is negligent in cleaning and maintaining the property, it will impact the firm’s operations.
2.  In contrast to a standard gross lease, costs in a modified gross lease are likely to change. This can have an impact on the company’s financial planning. In addition, Tenantnant had to pay a little extra due to the landlord’s overestimated expenditures.

NNN vs FSG Lease

TRIPLE NET LEASE (NNN)

Triple net leases are also known as net-net-net leases or NNN leases. In this type of lease, all the expenses related to the building are passed on to Tenantnant. This implies Tenantnant is liable for the base rent and property taxes, insurance, utilities, maintenance, and repairs. This also implies that, in addition to running the business, Tenantnant will be responsible for everyday maintenance, major repairs, improvements, and renovations.

TRIPLE NET LEASE: PROS & CONS

PROS:

1. The landlord bears only a minimal responsibility because the renter has taken all of the responsibilities.
2. Generally, Triple net leases have a longer lease term. As a result, landlords can be assured that they will continue collecting rent for some time without worrying about replacing vacant properties.
3.  Another advantage of a NNN leased investment is that the landlord has the right to sell the property even if it is leased. In the industry, triple net properties are more accessible to the market than other asset classes. Because the lease is transferred with the sale of the property, Tenantnant will be able to continue doing business as usual if the landlord sells the property. The property’s new owner will honour the original lease agreement and adhere to its terms and restrictions.

CONS:

1. In a NNN lease, it’s impossible to add value through forced appreciation because you can’t change the rentals or modify any of the lease terms once it’s signed. If yTenantnant wants to change the conditions of the lease, such as the rent amount or the term duration, this is an excellent opportunity to get some advantageous terms from the landlord in exchange.
2. Even if Tenantnant is responsible for costs such as insurance and upkeep, if Tenantnant fails to do so, the owner is ultimately responsible for the costs. If Tenantnant does not pay their taxes, the property owner is exposed and liable for the costs.
3. The triple net lease allows the medical office property owner to lease the property for a reasonably long base period, ranging from 5 to 25 years. Options range from 10 to 50 years beyond that. However, every landlord must understand that Tenantnant will eventually go, and the property will remain vacant with no income. When the lease period ends, Tenantnant can quit; however, the property owner will be required to incur costs before leasing the property again by repairing it before putting it on the market for lease.

CONCLUSION

I hope that this article may provide some insight into the process of signing a business property deal. Depending on your needs, a modified gross lease or a triple net lease are both viable options. Whether you’re a renter searching for a place to call home or a landlord trying to fill a vacancy, working with professionals who can negotiate the most favourable deal for you is essential.