If you google the term “single net lease,” you could find that very little content describing JUST the single net lease will pop up. The likely reason behind the lack of single net lease articles is because the single net lease arrangement isn’t very common. Still, as is the case with any contract between a property owner and tenant, it’s important to have an overview of all types of leases, whether they are prevalent or rare.
Defining the net
The single-net lease -- known, in shorthand, as “N” -- is an arrangement in which the tenant takes responsibility for paying property taxes. Depending on the tenant-landlord relationship, such a structure could be set up in the form of a pass-through lease, in which the tenant agrees to pay those taxes directly to the municipal entity.
Or, that might not happen at all.
Even if the tenant agrees to pay property taxes, there is a possibility that those payments might be late. To avoid this potential problem, and attendant liability involved, the property owner might decide to collect payments directly from the tenant (along with the monthly rent), and put that money into an escrow account. When the taxes come due, the landlord pays them from the escrow account.
Additional property owner involvement
What else might a landlord pay in a single net lease? While the tenant pays property taxes, the owner pays just about every other property-related expense, such as insurance premiums, deductibles, and maintenance costs.
Operating costs affiliated with the property? Landlord responsibility. Busted water pipe? Landlord responsibility. Increase in insurance premium? Landlord responsibility. Crabgrass in the landscaping? Again, landlord responsibility.
The question then becomes, why would a landlord want to sign a single net lease with a tenant? There is a modicum of difference between the N arrangement and that of a gross lease, in which the property owner is responsible for all property expenses.
However, a landlord might decide to put a single net lease contract in front of a tenant for the following reasons.
Property tax pass-along. While the landlord might not want to take on this expense, the tenant could be willing to write it off as a cost of doing business.
A viable negotiating tool. Faced with a tenant that would prefer a gross lease set-up, the property owner might counter with a single net lease contract and lower monthly rent.
Simplicity. The single net lease is a fairly simple arrangement, as the tenant pays only one cost.
Rare, but there
Though it’s true that the single net lease arrangement is far less common than its triple net counterpart, it is used in certain cases. From the landlord’s perspective, the N arrangement isn’t a gross lease, in that it helps shift some property costs to the tenant. As for the tenant, those property tax payments could represent a good tax deduction.
Understanding tenant-landlord agreements, no matter how uncommon they might be, is important when it comes to property investments. Information about such arrangements is an essential part of the due diligence process involved with selecting the right real estate investments that match investment goals and portfolio structures.
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