The Ins and Outs of a St. Louis Industrial Space Triple Net Lease.
A triple net lease is a lease where you, as the tenant, take full responsibility for maintaining your space and paying its operating expenses. Some tenants think this lease structure is advantageous to the landlord. After all, when you sign an NNN lease, you’re agreeing to pay all of the bills. However, this lease structure really means that you’re in total control of your St. Louis industrial space.
The Three Nets
Technically, a triple net lease is a lease where the rent you pay the landlord is net of tax, insurance and maintenance. If you occupy the entire building, the bills frequently get sent directly to you, while if you’re a partial tenant, you pay a pro-rata share based on the amount of space you occupy. If you occupy half of the building, you’ll pay half of the bill.
The tax and insurance components of an NNN lease are relatively self-explanatory, but there are a few components to the maintenance part of the lease. You’ll be held responsible for maintaining your own space, including making repairs and paying utilities. You can still, though, negotiate a tenant improvement allowance at lease commencement. In addition, you’ll also pay your share of the building’s common area maintenance expenses, covering everything from elevator service to snow removal in winter. Finally, some leases also hold you responsible for your share of building capital improvements that benefit you, like energy retrofits.
Triple Net Lease Rates
Triple net leases are less expensive than other types of leases. While a small industrial space in St. Louis might cost $10 per square foot on a full service gross basis, the triple net lease would be $6 per square foot, plus the triple net costs, sometimes referred to as CAMs. If the triple net costs are below $4 per square foot, you come out ahead. Furthermore, while the full service lease typically goes up by a set percentage on the entire rent, triple net lease escalators are only tied to the rent portion. When a $10 full service rent goes up by 4 percent, you’re going to be paying $10.40. The same increase on a $6 NNN lease costs just 24 cents.
You do have exposure to increases in operating expenses with a triple net lease. However, many full service leases have the same provision. In fact, a $10 full service lease with a $4 expense stop is the same thing as a $6 NNN lease with $4 in CAMs.
The Power of Control
If you’re an efficient tenant, your CAMs can go down with a triple net lease. When you run your industrial space in St. Louis more efficiently or work with your landlord to appeal the property taxes, you reap the benefits. With a full service lease, you’re stuck paying the expenses that are built into your lease.
The NNN lease has a second benefit, too. You get to maintain your own space to your own standards. If you want your hall vacuumed every day instead of once a week, you can do that. When you decide to set your warehouse thermostat at 68 in winter and 72 in summer to keep your employees comfortable, there won’t be a landlord forcing you to save energy. Ultimately, your space is yours and you get to make all of the decisions about it — just like being an owner.
Triple net leases shouldn’t cost you any more than gross leases. Many times, the reduced lease escalations and ability to benefit from operating expense reductions actually make them less expensive. Along the way, you’re able to enjoy the same control as an owner while maintaining the flexibility of leasing.
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