Question

In a net lease, the landlord charges a lower base rent for the commercial space and then makes an additional charge to the tenant to cover expenses associated with operations, maintenance, and insurance that the landlord must pay. True or False

You are interested in buying a property that has Starbucks is the major lessee. The Starbucks lease has a current term of 15 years. The current lease is a double-net-lease. This means that the landlord pays all taxes associated with the property and Starbucks must pay insurance premiums and rent. True or False

When considering an investment in a property that has a single tenant that credit rating of the tenant is fundamental to the value of the lease and therefore the property. True or False

Answer 1

Divide the whole question into 3 parts a,b and c

A.The statement is true because in a net lease agreement the lessee pays a portion or whole amount of expenses associated with the property like taxes,insurances, maintenance etc.. in addition to rent.

What is net lease?

Net lease refers to a rental agreement which commonly used in commercial real estate business,in which a lessee pays a portion or all of the taxes,maintenance fee, insurance associated with the property in addition to rent.net lease is commonly used in commercial real estate where investors buying properties for income and do not want the headache for arranging the associated expenses of the property.

Types of net lease:

1.single net lease

2.double net lease

3.triple net lease

B.The statement is false because a double net lease is a rental agreement in which lessee must pay both property taxes and insurance premium along with rent.The statement says Starbucks is paying insurance, rent and all other expenses are paid by landlord.In double net lease lessee must pay two of the expenses associated with the property,that is property taxes and insurance premiums.

What is Double net lease

A double net lease is a type of net lease in which lessee is responsible for both property taxes and premiums for insuring the building.the tenant has the responsibility to pay both the expenses associated with the property.Double net lease is more common than single net lease,in which the tenant has to pay only one part of building expense like property tax.

C.The statement is true because investors are investing in high quality real estate for long term with out concern of associated property expenses,so the credit rating of the tenant is fundamental to the value of the lease.this is commonly used in tripple net lease agreement,in which the lessee has to pay all the expenses associated with the property like taxes,insurance and maintenance.

What is triple net lease:

A triple net lease is a lease agreement in which lessee solely responsible for all the costs relating to the asset being leased, in addition to the rent applied under the lease agreement.the lease agreement requires the lessee to pay all the 3 expenses associated with the property including net real estate taxes,insurance and common area maintenance.

triple net lease become popular for investors seeking steady income with relatively low risk.The benefit for investors include long run steady income with capital appreciation of underlying property.