There are five NNN net lease provisions a landlord and its attorney should not agree to modify. Here are the subject matters:
1.Liability of Landlord: This provision may, in fact, be the most dangerous of all the provisions if the NNN 1031 landlord allows it to be negotiated. The limitation of liability against all individuals affiliated with the landlord should be of primary concern. Often, a tenant will want evidence that a landlord has an equity investment in the project before agreeing to the concept. In other situations, a tenant may insist on having recourse against future rents or other proceeds that a landlord may collect. The net lease 1031 landlord should make certain these amounts have not already been pledged to a lender before agreeing to commit them to a tenant(NNN 1031 landlord, NNN net lease provisions ).
2.Insurance: This is important from the net lease property landlord’s viewpoint because it gives some assurance that the NNN tenant will not go out of business if such an incident occurs, and the tenant will have the ability, through insurance, to continue paying rent and other charges as they become due. It is different from rental abatement insurance because it pays the tenant’s business losses, not the landlord’s rent losses. NNN Tenant is required to maintain certain minimum levels of insurance to make sure that the various liabilities that tenant undertakes under the lease will have some insurance backing them up.
3.Indemnification: There are two key protections for the triple net investment landlord in this clause: indemnification and exculpation. First, the indemnification part – this places responsibility on the tenant for losses that arise out of the tenant’s fault, work, breach of the lease, or failure to abide by applicable governmental regulations. In the second half of this clause, in the exculpation, the triple net lease tenant waives or agrees not to pursue, any claims against the landlord that arise from things that are not due to the landlord’s negligence or willful acts. The logic behind this entire clause is that the tenant’s insurance should cover these kinds of losses and, as long as the landlord is not directly responsible for the loss, the landlord should not be held responsible(1031 property owner).
4.Environmental hazards: The length and depth of the hazardous materials clause arise because of the complex and constantly growing body of law that now places ultimate responsibility for hazardous materials on the NNN net lease 1031 property owner where the material was disposed of, created, spilled, used, etc. This liability has forced numerous otherwise solvent NNN property landlords into bankruptcy through no fault of their own. It is not only imperative that this clause not be altered, but also that the person responsible for the lease determine what kind of business the tenant is engaged in and what its past record has been with regard to hazardous materials.
5.Subrogation: Waiver of subrogation is an area that only insurance agents and very picky and troublesome NNN tenants care about. In plain English, this provision means that if either the tenant or the NNN property landlord has insurance covering a loss, both parties will look first to the insurance rather than suing the party at fault. If the insurance is inadequate, however, then the lease determines who is liable to whom. Also, if both parties are carrying insurance for the same loss, the lease would govern whose policy would pay.
NNN leases have many provisions that could pose a threat to your successful investment. At the Triple Net Investment Group, we vet and monitor the nitty-gritty of the constantly changing NNN investment property market like a hawk, and interact daily with hands-on investors, legal experts, CPAs, and other professionals to understand the pragmatic impact of what issues matter and how much. Call us today for the best advice for your NNN net lease transaction.
