Drafting Net Leases in Florida Commercial Real Estate

Commercial real estate transactions often involve complex lease agreements that dictate the responsibilities of both landlords and tenants. Among these, net leases stand out as a unique arrangement that places specific financial obligations on the lessee. Unlike gross leases where a landlord covers all expenses and simply charges an all-included rental fee, net leases involve the tenant being responsible to varying degrees for the property’s expenses. Net leases are very common in Florida’s commercial real estate market. Potential commercial landlords can benefit from exploring their types, nuances, and the risk mitigation strategies landlords employ to reduce their exposure to early cancellation or potentially expensive repairs.

Understanding Net Leases

A net lease is a type of commercial real estate lease agreement where the tenant assumes responsibility not only for paying rent but also for some or all of the building’s operating expenses. These expenses can include property taxes, insurance premiums, repairs, and utilities, depending on the specific type of net lease signed by the tenant.

Single Net Lease (N Lease)

In a single net lease, tenants are responsible for property taxes alone. However, other expenses like insurance, maintenance, and repairs remain the landlord’s responsibility.

Double Net Lease (NN Lease)

Double net leases require tenants to pay for property taxes and insurance premiums in addition to the base rent. While landlords retain responsibility for maintenance and repairs, tenants shoulder a broader financial burden.

Triple Net Lease (NNN Lease)

Triple net leases are the most comprehensive, with tenants covering all real estate-related expenses, including property taxes, insurance premiums, repairs, and utilities. This places a substantial financial responsibility on the lessee.

While all three types of net leases can be found in Florida, the most prevalent arrangement is the double net lease (NN lease). This structure strikes a balance, distributing financial responsibilities between landlords and tenants in a way that is commonly accepted in the state.

By contrast, NNN leases are usually preferred by the largest corporate tenants.  These enterprise-sized tenants often have a national footprint and want to have maximum control of the many properties they occupy.

Landlord Risk Mitigation Strategies

Property Taxes Collected with Base Rent

Landlords, as property owners, are ultimately responsible for property taxes. To mitigate this risk, landlords often include the cost of property taxes in the base rent and pass this amount on to the county, ensuring that this critical financial obligation is met.

Raising Base Rent for N Leases

For single net leases (N leases), where the tenant is responsible only for property taxes, landlords may raise the base rent to compensate for assuming the financial burden of insurance premiums, repairs, and utilities.

Using Bondable Triple Net Leases (NNN Leases)

In the case of triple net leases (NNN leases), landlords seek to reduce risk by implementing bondable leases. These leases make it challenging for tenants to exit the commercial lease in cases of financial hardship, providing a layer of protection for landlords. Bondable leases also ensure that the tenant is 100% responsible for all major structural repairs and elemental damage such that caused by fire or water.  In all cases, the tenant agrees to continue paying the rent to the landlord regardless of the condition of the property, the expenses the tenant incurs or even if the tenant is no longer physically occupying the property.  

The Importance of an Attorney

When entering into a commercial lease it is very important to do so with the advice of a competent, local attorney with experience in drafting and reviewing commercial lease agreements. If you are a tenant in a commercial lease relationship, you are not protected by the consumer laws that cover the landlord-tenant relationship in a residential lease agreement.  If you are the landlord, there are no standard forms that govern the agreement as is the case with residential agreements in the State of Florida.  These factors and the fact that much more money and time (in terms of the length of the agreement) is usually at stake, make commercial agreements far more complex and difficult to negotiate.

South Florida Law

Whether you are the landlord or the tenant, you will be best served by having legal counsel by your side helping you to make the best decision for your business.

At South Florida Law, we are committed to helping our clients close real estate transactions of all types within the state of Florida.  We help companies and their landlords come to agreements that work best for their business interests.  In cases where it is necessary to navigate through obstacles in order to close on a transaction, we have the big firm resources to dedicate the time and effort where it is needed. At the same time, we provide personalized service and attention to detail in your case at a price point that can only be achieved with a boutique firm of our size.  Are you planning to enter into either side of a commercial lease agreement in Miami, the Keys, Broward or Palm Beach County? You need an experienced Florida real estate attorney you can rely on.  Call South Florida Law today on (954) 900-8885 or reach out to us via our contact form.

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