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Triple Net Property Investing 101: The Importance of Title and Lease Review

March 9, 2023arlegalteamBlog Post, Uncategorized

If you’re considering buying a triple net property, don’t forget to do your homework! Before signing on the dotted line, make sure to carefully review the lease and title documents to ensure that everything is in order. Your diligence could pay off in a big way. Below are a few key items to consider.

The first item to consider is the basic terms, such as the base rent and options, which should be confirmed by cross-checking the lease with the offering memorandum.

Next, parking rights should be examined to ensure the tenant has exclusive parking on their parcel and the right for their customers to park in the greater shopping center.

Thirdly, common area maintenance charges should be investigated to check if there are any such charges imposed by the larger shopping center.

Fourthly, property taxes should be confirmed, making sure that the tenant is responsible for paying the taxes directly to the taxing authority, rather than the landlord paying the taxes and then being reimbursed by the tenant.

Fifth, it’s important to verify that the tenant has adequate insurance coverage and pays for it directly, with the landlord being named as an additional insured under the policy.

Sixth, triple net obligations should be checked to ensure that the tenant is responsible for all repairs and maintenance to the building, including structural repairs.

Seventh, any common area maintenance (CAM) charges for the greater center should be checked for a dollar amount and whether the tenant pays them directly to the landlord.

Eighth, exclusivity provisions must be examined to determine if the tenant has any exclusive rights to their portion of the property that prevent the landlord of the larger shopping center from leasing space based upon the exclusive set forth in the lease.

Ninth, it’s necessary to ensure that if the tenant desires to assign the lease, they are not released from any obligations.

Tenth, it should be confirmed that if the tenant defaults under the lease, there is no obligation for the landlord to mitigate damages, and there are no limitations on the tenant’s liability for the remaining term.

Eleventh, it’s important to determine if there is a rent tax imposed by the governing authorities. If so, the tenant is responsible for the rent tax.

Twelfth, if there is damage or destruction to the building, the tenant must have the absolute obligation to rebuild the premises at their own cost and expense, with no termination right by the tenant.

Thirteenth, obligations of the landlord for the balance of the shopping center should be highlighted to identify what sections of the lease the landlord has an obligation to the tenant relative to the remainder of the shopping center.

Fourteenth, it’s important to determine if there are any restrictive covenants that would hamper a future buyer of the property.

Fifteenth, the language of the lease should be examined to ensure that it is a true triple net lease. Finally, it’s crucial to have an unlimited guaranty, and to review the CC&Rs to identify any restrictions or covenants that could cause problems down the road.

So, before you sign on the dotted line, make sure to follow these steps and review the lease and title documents thoroughly. Your future self will thank you for it!

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