Are Illinois Triple Net Leases Different in Any Way?
Triple net leases in Illinois are the same as any other triple net leases in the country – they are a specific type of lease where a commercial tenant pays a base lease amount plus a prorated portion of the building’s operating expenses. These expenses can include things like utilities, taxes, insurance, and maintenance costs. Triple net leases (also called net-net-net or NNN leases) are popular for industrial and retail properties with multiple tenants.
NNN Leases Are Preferred with Commercial Property Landlords
Commercial property landlords in Illinois usually prefer triple net leases since this type of arrangement basically insulates them from unexpected expenses, such as building maintenance or repairs, tax increases, and so forth. The landlord will generally handle the actual payment of all the building’s operating expenses, but the tenants will pay their share of the amount upfront directly to the landlord.
Upsides to Triple Net Leases
The biggest upside for tenants in a triple net lease is that the base lease price is lower than in a gross lease scenario. This type of arrangement can be especially beneficial for tenants leasing space in a new property where not much maintenance is required and the newer systems use utilities sparingly, keeping costs down.
In a property where occupancy rates are high, tenants can enjoy particularly low expenses since the cost will be divided between more tenants. Finally, tenants can use their creditworthiness and past lease track record as a point of leverage to negotiate a lower base lease rate. Landlords will usually give priority to tenants who have a good track record of financial responsibility.
A triple net lease can also be quite beneficial for landlords since they can earn a steady income that doesn’t change month to month. This can make it much easier to budget since the landlord’s income will be approximately the same each month as long as occupancy rates remain steady, regardless of what happens with the property in terms of maintenance costs or unexpected expenses.
Downsides to Triple Net Leases
The biggest downside of a triple net lease for a tenant is that if the property is damaged and needs significant repairs or the taxes increase dramatically, the increased cost will be their responsibility. Plus, potential tenants must analyze the current tenants of a property to determine if they will be viable and around long-term in order to keep the costs distributed among the greatest possible number of tenants, thereby reducing each tenant’s cost. Lastly, tenants usually pay their portion of the operating costs directly to the landlord rather than to each separate entity, which means that this amount cannot be deducted from the tenant’s taxes.
For landlords, the biggest downside is finding tenants who are willing to sign on to a triple net lease agreement, especially if the property is older or has a poor record with tenant retention and occupancy rates. But, a properly negotiated triple net lease in Illinois can be beneficial to both parties.