| The Lease Structure That Generates the Most Cash | | | | lease is one in which the lessee pays all of the |
| for Your Commercial PropertyCommercial properties | | | | operating expenses, and the lessor simply receives a |
| are characterized through income generated by rents | | | | rent check every month.This structure of leasing has |
| paid by tenants. These commercial properties can be | | | | become very popular, and many commercial |
| apartment complexes, office buildings, strip malls, retail | | | | properties are making the switch because it greatly |
| centers and medical buildings.The more income a | | | | decreases the overall expenses, net operating income, |
| commercial property can produce, the more valuable it | | | | and make the property higher performing and |
| is. The true qualifying factor is the net operating | | | | extremely more valuable. The lessors may not be |
| income, or NOI, which is income minus operating | | | | happy, as they are now required to pay for the entire |
| expenses. Operating expenses include any expense | | | | property, as opposed to just their living space.So how |
| that relates to the actual operations of the property. | | | | does the lessor know how much each lessee must |
| These can include taxes, utilities, maintenance, and | | | | pay? Besides separating the utilities and having each |
| management costs.It used to be common for the | | | | unit's tenant be responsible for that which he or she |
| owner to pay the property's taxes, insurance, and | | | | uses, the common expenses are divided among all the |
| utilities under a full service lease. The tenant would | | | | units according to the total square footage of living |
| simply pay the rent every month, and the owner would | | | | space. The larger the unit leased, the more they pay.In |
| pay the bills. This greatly cut into overall profits, as the | | | | order to put this triple net lease structure into place, |
| owner was using rent income to pay the additional | | | | and see your income drastically increase, simply put a |
| bills.Savvy commercial property owners and investors | | | | clause in the contract that the lessee is to pay the |
| soon came to realize that if the tenants are using the | | | | operating expenses which will be divided on a pro-rata |
| property, then they should have to pay for the | | | | share, based on square footage usage. Under this |
| expenses of keeping it in operation. After all, who is | | | | lease, the tenant literally pays all common area |
| using the water, electricity, trash services and common | | | | maintenance which may include parking lot cleaning, |
| areas? Not the owner, but the tenant.Net leases | | | | parking lot's electric, the lawn care, pool maintenance, |
| became popular, instead of the full service lease, which | | | | and all other utilities used by the project.If you feel that |
| required the lessee to pay only the taxes and | | | | your property could better perform by implementing a |
| insurance. The lessor would be responsible for utilities | | | | triple net lease structure, then speak to your lawyer or |
| and other related operating expenses. This change in | | | | advisor about rewriting the contracts to include the |
| lease structure allowed more profit to stay in the | | | | triple net lease clause. Watch your expenses |
| hands of the owner.Even still, owners took the lease | | | | drastically decrease, and you income rise quickly.Tony |
| structure one step further. In recent years, and even | | | | Seruga, Yolanda Seruga and Yolanda Bishop of |
| recent months, both young and old properties are | | | | specialize in commercial and investment real estate. |
| being changed to net-net-net leases, or the triple net | | | | As of May, 2006, they and their partners are |
| lease, where the lessee (tenant) is responsible for | | | | managing over $600 million dollars worth of new |
| paying three of the most important operating | | | | projects. |
| expenses: taxes, insurance, and utilities. A true triple net | | | | |