Are you considering leasing commercial property? If so, you might have come across the term “pass-throughs” in Triple Net Leases (NNN). Don’t worry if it sounds a bit confusing at first – let’s break it down.
What are Pass-Throughs?
In a Triple Net Lease, the tenant typically pays for three main expenses: property taxes, insurance, and maintenance costs, in addition to the base rent. Pass-throughs refer to the practice of passing these additional costs from the landlord to the tenant.
Breaking Down the Pass-Throughs:
Property Taxes: These are taxes imposed by the local government based on the assessed value of the property. In a Triple Net Lease, the tenant is responsible for paying these taxes.
Insurance: Commercial property insurance covers damages to the building and liability risks. The landlord includes the cost of insurance premiums in the lease agreement, which the tenant reimburses.
Maintenance Costs: Also known as operating expenses or common area maintenance (CAM) charges, these include the upkeep and maintenance of common areas like parking lots, landscaping, and shared facilities. Tenants typically pay a share of these costs, often calculated based on the proportion of space they lease in the property.
Why are Pass-Throughs Important?
Understanding pass-throughs is crucial for both landlords and tenants:
For Landlords: Pass-throughs help landlords maintain the profitability of their investment property by ensuring that they are not solely responsible for these expenses.
For Tenants: Knowing about pass-throughs allows tenants to accurately budget for their total occupancy costs. It’s essential to carefully review the lease agreement to understand which expenses are being passed through and how they are calculated.
Conclusion:
In essence, pass-throughs in a commercial Triple Net Lease distribute the financial responsibilities associated with property taxes, insurance, and maintenance between the landlord and the tenant. By understanding these terms upfront, both parties can enter into a lease agreement with clarity and confidence, knowing their respective obligations and costs.
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For more helpful information check out our other blog posts like this one titled: Commercial Real Estate Listing Agreement.
Let one of our knowledgeable listing agents partner with you to find a commercial real estate property perfect for your business needs, and assist you in working through the lease process. Contact Jason Rogers, Craig Byers, or Austin Geasland at 319-294-3339 today!
