Hidden Pitfalls of the Triple Net Lease
Leased space has its pros and cons. Their ratio will depend on how well the entrepreneur searched and how carefully he concluded the contract. So here we would discuss the disadvantages of the triple net lease because many users are familiar with the perks of it and lack the knowledge of other issues they may face.
Main Points
The disadvantages of the triple net lease are as follows:
Rent increases the cost of production.
It is necessary to inform the landlord about such a venture.
There is a risk of renting unsuitable premises and wasting time and money.
The rent may increase.
The landlord can terminate the contract unilaterally.
So you do not have the money or time to buy the property. You want to ensure the business is profitable, and only then start thinking about buying your building. For now, it will be enough to rent spacious premises with an office for yourself and the accounting department.
Searching for Space
It is better to start the search by listing requirements for future premises. These may include cost, location, transportation infrastructure, condition, availability of communications, and security.
Experts in the field advise you to check yourself on the main points. First, the cost of renting will affect the cost of production; the business’s profitability will depend on it. But the cheapness is also not worth buying because it may indicate that the landlord has problems with documents.
Knowing the average market rental price in the area of the building location is viable for screening proposals with very low or inflated rental rates.
Equipment is expensive, especially for novice entrepreneurs. If it gets stolen, it’s going to be complicated. So it is better to ensure that the building or industrial complex where he rents space is guarded round the clock.
Examination of the Premises
First, you must set yourself up properly before meeting with the landlord or his representative. Then, you should carefully inspect every corner of the room you’ve seen. After all, when you sign the contract, the problems on the premises will become your concern and responsibility.
To cross out the disadvantages of a triple net lease, you need to pay attention to the condition of the entire building, then carefully observe the room. Proceed as instructed:
Check out the walls, floor, and ceiling. There should be no cracks, holes, or other significant problems.
Check the doors and windows to see if they work well, squeak, or not. Try the locks.
It is essential to check the electrical connections. Whether the light, air conditioning, ventilation, and fire alarms work everywhere.
Landlord Documents
Now you have to check the landlord’s paperwork: ownership or sublet agreement. Ask the landlord for:
The document under which he owns the property.
Passport for the premises.
Pay attention that the address of the premises must coincide with the address in the document or extract. In addition, if the owner does not rent the space, you need to check that his lease contract was permission to sublet.
The technical passport will help ensure that the area of the premises coincides with what the landlord will specify in the lease contract.
Letter of Intent
Once you’re sure that the space and paperwork are in order, it’s time to negotiate. But not to enter into a contract. First, you need to gather the documents, and second, agree on the conditions’ details.
So that the premises will not go to another tenant, you sign a free-form letter of intent with the landlord. It is a preliminary agreement that the parties will change to a long-term deal. The letter briefly describes the lease terms: the area, the cost, and the possibility of termination.
The Contract
So, you and the landlord prepare the text of the contract. What items should be in the document so that the disadvantages of triple net lease do not make themselves felt?
The object and the object of the transaction;
The procedure for transfer of the property;
The general and special rights and obligations of persons;
The amount of rent, the process for changing it;
Responsibilities of both parties;
Process for settling disagreements and disputes;
Additional conditions;
Details of the parties (addresses, tax number, contacts, etc.).
The subject of the contract is the relationship with the lessor, and the object is the property leased out.
Triple Net Lease Payments
In addition to the rent amount, the tenant pays for electricity, gas, and water utilities. These costs can be included in the rent or as an additional item.
The landlord has no right to change the rent unilaterally. However, if the terms for reviewing it are not spelled out in the contract, it is possible to change the amount no more than once a year.
If you need to remodel or redecorate the premises, it is necessary to specify the procedure for their coordination with the object’s owner in the contract. It is also important to determine under what conditions the repairs will occur.
It is also valuable to stipulate the procedure for access to the premises. What if you owe the rent? He needs to know whether, in such a case, he will be able to get into the site and whether the lessor guarantees the safety of the equipment and products.
You should also specify whether the tenant has the right to sublet the property; whether it is possible to install advertising on the outside of the building. And finally, the procedure for early termination must be stipulated if you did not include the right to terminate the contract, you would have to pay the rent until the contract expires.
Important:
Don’t sign the contract without reading it.
Don’t move or make repairs without a contract.
Take the contract and read it in peace. Consult a lawyer if anything alarms you or doesn’t make sense.
Acceptance Act
You sign an acceptance report to protect yourself from triple net leases, unforeseen expenses, and loss of business. It’s also called an acceptance or transfer deed.
You need to sign it a couple of days before the move. This condition is prescribed in the contract. The act indicates the shortcomings of the premises and meter readings. It also describes the sets of keys and equipment that were transferred to the tenant. The act is insurance against the fact that the landlord will force him to fix the defects at his own expense.
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