Issues with Triple Net Leases

[Christine Schromm]

Hello I am a potential investors in commercial real estate (for the reasons

I will be opening a business with a physical location (plans have been delayed because of COVID). We've been looking for commercial real estate (primarily to lease but we also considered buying) in a very competitive market for almost a year without finding the right location. When we first started looking for a space we were told that most leases were NNN and that it was no big deal because triple net was only a few dollars a square foot. It didn't really make intuitive sense that we as tenants would be responsible for paying the taxes, insurance and CAM of the property owner but we figured that if it were really only a few dollars a sqft we could live with it.

But our experience has been that triple net is far more than a few dollars a sqft. In many cases it is 50% of rent and projected to go up very quickly such that it could exceed 60-70% of rent within the span of a five year lease. Eg rent is $30 psf with $14psf in NNN. We know that triple net leases are customary in our area but when NNN reaches a certain point like when our lease costs 160% of rent it can actually take a big hit on our profit margins.

We were so concerned with these crazy NNN costs that we have actually been looking into buying more seriously. If we are going to pay all the insurance, taxes and maintenance, we may as well own the building.

I realize this may be a little bit of the wrong place to ask this since many of you are property owners but I'm wondering your opinions about NNN leases and whether they will remain feasible in markets like the one I'm in. Is anyone working on efforts to change this? Is there any basis for the idea that tenants should pay these costs other than because theyre at the mercy of the landlord?

One more question...do all NNN leases require tenants to pay for repair and maintenance of the building?