For NNN property investors, one creative method to structure a NNN lease is Build-To-Suit or BTS. Of course, BTS has its own set of advantages and risks.
Stereotypically, a Landlord constructs a building on property – the contractually complicated part – in accordance with the demands of a single tenant under a development agreement. The development agreement – either “turnkey” or “cold dark shell” – can include guarantees by parent entities of both, tenant and landlord, depending on the circumstances(NNN property investor, experts at Triple Net Investment,NNN in Build-to-suit). For such BTS projects, specialized construction lenders will introduce their own parties, such as inspectors, insurers and guarantors(nnn lease brokers), and of course terms and encumbrances, that must be adhered to by both landlord and tenant.
After construction, the landlord leases the new building to the tenant for rent for a defined period of time, whilst retaining ownership of the property.
Build-to-suit has the following key aspects:
- Milestones for the design, construction, and occupancy phases around which a schedule will be built, such as securing of financing and permits, ground breaking, pouring of the foundation and completion of the structural steel;
- Both landlord and tenant must consider and negotiate on what will happen in case of delays due to financing, permitting or other reasons;
- The date on which the building is complete must be established, so as to trigger, amongst other things, the commencement of the payment of rent. This date is typically described as the date of “substantial completion” or “substantial performance”;
- Negotiations on common contractual issues such as project purchase options, sub-leasing by the tenant, warranties, etc.
BTS has complexities that be best navigated with the assistance of your experts(nnn lease brokers) at Triple Net Investment Group. Call or email, us today.
