Lease Structures

Triple net-lease

With a triple net-lease (“NNN”), expenses for insurance, roof and common area maintenance, and property taxes are your responsibility, not your landlord’s. However, in this type of lease, you don’t pay these expenses upfront — your landlord does. Then, by calendar or fiscal year-end, you would fully reimburse your landlord.

Double net-lease

With most double net-leases (“NN or NN (R&S)”), insurance and property tax expenses are incurred by you as a tenant. It’s up to your landlord to pay for common area maintenance such as the roof, structure, and parking lot.

Absolute net-lease

Absolute net-leases (“Abs NNN”) create a very passive income stream, as your landlord is not responsible for any expenses. All building expenses are directly paid for by you, as a tenant.

Single net-lease

Single net-leases (“net”) aren’t too common. They require the landlord to pay for property maintenance along with another expense such as insurance or property taxes. You would incur the cost of all other expenses.

Gross lease

Unlike net-leases, gross leases come with a flat fee to the tenant that includes all expenses, like insurance, maintenance, and property taxes. They can also exclude extra expenses that you would typically pay for on your own, such as internet.

Closing Cost: Who is responsible?

We always hear the term “closing cost” thrown around in any real estate related conversation.  So what is this pesky cost?  Most importantly…. Who PAYS this pesky cost?

 

Simply put, closing costs are the fees required to complete any real estate transaction.  Closing costs vary from residential real estate , commercial and all the way up to land sales.  You have to pay these costs once (you) the buyer has received their money for the purchase and all required document’s relating to the closing have been signed.  This typically happens on closing day.

The major difference between commercial and residential closing costs, is that in commercial deals the seller is responsible for the cost.  Commercial closing costs fall in the following categories:

Appraisal:  It is difficult to determine the value of a large commercial building.  There are professionals in the industry that will come along and do this for you.  This generally costs thousands.

Inspection:  As is the case with any real estate purchase (commercial or residential) , there must be an inspection of the property.  The inspection helps both buyer and seller.  It determines that the condition of the property is habitable.  It also lets the buyer know if there are any major defects or renovations that will need to take place.  For example, a leaky roof is something that could be caught during an inspection.  At this point, the owner must handle the leak so that the buyer will not be financially accountable in the future.  This generally affects the pricing and negotiations process.

Property Repairs: Property repairs generally consist of things like electrical and mechanical problems in the buildings exterior and common areas.  The inspection report will come in handy when deciding what to do here.

Other commercial closing costs will include:

  • Commissions for the agent/ broker.
  • Marketing expenses
  • Outstanding property debt
  • Title/ selling fees.

MACY’S TO CLOSE UP TO 10 DOWNTOWN STORES

As a result of the “work from home” era and massive drops in tourism, Macy’s looks to close the doors of 10 of its downtown locations.  With the increase in digital sales, there is a massive decrease in foot traffic.  However, there is hope.  The rate at which people are returning to work is nearly doubling each quarter.  MACY’S is not the only retailer facing closures.  CVS is planning to close an excess of 900 stores in the next 3 years.

 

THOUGHT OF THE WEEK !

“With inflation concerns making headlines, have you reviewed your lease lately for CPI escalations?  Benchmark Commercial offers complimentary lease reviews to better understand your exposure to lease language with CPI (Consumer Price Index) escalation clauses.  The more informed you are, the better you can prepare your business for the year ahead.”

 

-Jaimee Keene, Benchmark Commercial