Tuesday 27 october 2009
2
27
/10
/Oct
/2009
07:04
Real estate investors in the current climate are interested in owning net leased properties. Indeed, net leased purchases are virtually
the only real estate deals closing. They provide a dependable cash flow for the lease term, currently 15 year leases are favored, or enable the investor to build equity. Many buyers enter into
negotiations assuming that after closing, their only obligation will be to take a check to the bank. However, net lease is a term full of subtle, yet important nuances, creating many detours on
that trip to the bank.
Net lease is a highly variable term. Investors will come across: bond type net lease, absolute net lease, net lease, net net lease and net net net lease, which is often abbreviated to NNN lease. There is no blanket application of net lease as the clauses in each individual lease will define the terms. Without careful guidance in negotiations, owners may be saddled with obligations that should belong to the tenant.
Consider B Company, which goes to Wall Street to obtain financing for a purchase-leaseback deal. This arrangement is referenced as a bond type net lease. Typically, the financer will draft lease terms in which B Company, the tenant, bears responsibility for any and all structural repair and maintenance and responsibility for rent even in the event of damage, destruction or condemnation. When B Company initiates a net lease transaction with a local property developer securing financing, B Company will draw up a net lease in which it has none of the obligations that existed in the bond type lease. It is still called a net lease, but B Company has shifted a large financial burden to the owner. This wide variation in net lease terms necessitates a knowledgeable professional to help with the transaction. Otherwise, real estate investors will find themselves with net least terms they do not find acceptable.
Net lease is a highly variable term. Investors will come across: bond type net lease, absolute net lease, net lease, net net lease and net net net lease, which is often abbreviated to NNN lease. There is no blanket application of net lease as the clauses in each individual lease will define the terms. Without careful guidance in negotiations, owners may be saddled with obligations that should belong to the tenant.
Consider B Company, which goes to Wall Street to obtain financing for a purchase-leaseback deal. This arrangement is referenced as a bond type net lease. Typically, the financer will draft lease terms in which B Company, the tenant, bears responsibility for any and all structural repair and maintenance and responsibility for rent even in the event of damage, destruction or condemnation. When B Company initiates a net lease transaction with a local property developer securing financing, B Company will draw up a net lease in which it has none of the obligations that existed in the bond type lease. It is still called a net lease, but B Company has shifted a large financial burden to the owner. This wide variation in net lease terms necessitates a knowledgeable professional to help with the transaction. Otherwise, real estate investors will find themselves with net least terms they do not find acceptable.
