Why NNN?

Why do tenants want a NNN lease?

NNN seems to cost the tenant more and the landlord less (pass thru of costs).

Is there an accounting rule that makes NNN better for the tenant?

Thanks.

Its not that the tenant wants a triple net lease. Thats what most class A and to a slightly lesser exent class B properties demand in the lease agreements. The idea is to pass all expenses except the loan payments to the tenants. In this enviroment of utilities and municipal services increasing at rates in excess of inflation, its a good arrangement for a landlord, but not so good for a tenant. As far as accounting, it doesn't change the tenants expenses. The total expense is the same for a gross lease @ 2000/ month as compared to a NNN lease @ 1000/ month plus 1000/month in common area maintenance (CAM), tax reimbursement, etc.

it would seem that the NNN tenants would be in more of a position to dictate things to the property owners.

e.g.

Walgreens has more clout, than the property owner.

Why NNN? Because the market says so. Additionally, if Walgreens wants that corner location, then they will lease NNN to get it. Otherwise, CVS gets that location. Just because Walgreens is a solid tenant doesn't mean they can call the shots when it comes to the lease agreement. It's the same thing if they decide to buy the corner location. They always pay way more than market value for the land because they have to have that location.

[ Edited by dburch on Date 05/22/2007 ]

Why NNN? Tenants are competing with each other. If Walgreens, Game Stop, Sally Beauty, or any other national tenant wants to go on a corner, Walmart outparcel, or any other highly sought after retail site then they will pay the NNN expenses or their competition will. Tenants have been conditioned to pay NNN expenses like we have been conditioned to pay high gas prices....It's just a cost of business....