Understanding Triple Net Leases in Australia

In commercial real estate in Australia, every commercial lease agreement has different terms. That’s because every tenant is different. But did you know that there are different types of leases? A lease type that is a favourite among landlords and commercial real estate investors is a Triple Net Lease (NNN). 

What is a Triple Net Lease (NNN)?

A triple net lease in Australian commercial real estate obligates tenants to share property expenses (building insurance, real estate taxes, CAM) in addition to rent and utilities.

It’s the most commonly used lease type among Australian landlords, especially for assets with a single tenant. And for good reason.

What are the features of a triple net lease?

Expenses covered in a triple net lease include repairs and maintenance costs, property taxes and even building insurance. Landlords do not need to worry about covering these outlays.

Of course, as we noted, every lease is different, meaning a landlord may agree to cover some expenses that a tenant might usually fulfil under a NNN lease. It goes without saying that the lease negotiation is one of the most important stages in the commercial property investment process.

Benefits for Landlords

Certainty of income: Fixed and guaranteed passive income is a dream for most landlords, and understanding the precise number hitting their bank account each month helps greatly with cash flow forecasting and future investment strategies.

Simpler management: The tenant is responsible for most of the property expenses, meaning you can enjoy a simpler time overseeing that tenant and managing your property.

Reliable tenants: Often major, reliable national brands will agree to triple net leases. These occupants, with a brilliant track record, will serve as reliable tenants..

Longer lease terms: Triple net leases go hand in hand with longer lease terms, given, for example, they’re a mainstay of commercial real estate. This reduces vacancy risks and losses between tenants.

Risks for Landlords

Vacancy risks: A tenant vacating and an empty building might leave landlords shocked at how many expenses pertain to a commercial property.

Limited reconfiguration: Should a tenant have reconfigured the space under a NNN, the layout may not suit a future tenant once the existing occupant has vacated. The contrary, however, is also a possibility: that particular configuration might be ideal in the leasing market.

Reduced control: When there are less obligations on the landlord’s side, there is a hazard for them to relinquish daily operations control. That’s where a high-quality property manager is extremely valuable for commercial property investors.

For more information on commercial real estate investment in Australia, get in touch with us. We offer high-quality property syndicates to investors—a set and forget commercial property investment, leveraging our decades of experience and large network of property professionals.

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