When you are talking about commercial lease types, there are a few you may want to think about. When people talk about a triple net lease, also called an NNN lease, they are referring to a lease in which the party who holds the lease has the responsibility of paying “three nets.” Those are building insurance, maintenance, and the real estate taxes. From time to time, the holder of these kinds of lease finds themselves in the position to need to sublet the property. The National Real Estate Investor has put together a guide for anyone who is interested in negotiating sublets on leases for NNN properties.andnbsp;
When people are working on negotiating an NNN lease the starting point is usually whether or not the tenant is able to actually find a sublessee for the property without getting the consent of the landlord. If it is possible to work out an agreement between everyone involved, it will be possible to ensure that the current tenant’s needs and the owner’s needs are met.
there is often a set of rules that govern the subletting of an NNN property. The owner of an NNN property, or any property for that matter, wants to be sure that the obligations that are set forth in the NNN lease are met, whether that be by the person who is the original signer of the lease or if they are the person or party who is the sublessee. This means they are going to look at several things about the sublessee. They will look at the following for the person or the organization:
Credit score. The landlord will want to make sure the person responsible for making payments will be able to do so.
How important the NNN property is in terms of the business that is operated by the tenant. If the landlord is smart they will want to make sure any business that is operating on their property will continue to do well. There may be some pushback from the tenant on these points.
The credit required may not be as clear-cut as it should be. At the end of the day, the landlord who is providing the NNN lease does not want the space to go to someone who is less able to keep up with the obligations of the lease than the person who originally signed it. Sometimes when discussing the creditworthiness of the person in question, the earnings before interest, taxes, depreciation, and amortization (EBITDA) is brought up. Other factors may include the amount of funded debt or their net worth. Again, the landlord just wants to make sure whoever is holding the lease can meet its obligations.
Not all landlords are as concerned with the second primary principle. When the property in question is very important to the tenant, it is more likely that they will do whatever it takes to live up to the conditions of the NNN lease. In that respect, how crucial the property is to the tenant can have a large influence on a landlord’s affinity for allowing the property to be sublet. If the property is not as important to the tenant and if it looks like that person is in danger of filing for bankruptcy, it is less likely that the landlord is going to be ok with a sublet situation. The landlord needs to take into consideration what the consequences will be to them if the sublessee does not live up to the obligations of the lease. They always want to make sure they will be paid what was agreed upon in the lease.
To sum up, when you are negotiating a new lease agreement to sublet an NNN property, you may run into problems if you do not have some flexibility in the original NNN lease or if you are not able to work something out between the landlord and the person to whom you want to sublet the space. All parties need to be on the same page for any agreement to have any chance of being successful. The party who wishes to sublet a space needs to prove they can adhere to the NNN lease agreement.