NNN Leases: Due Diligence Requires Owner and Lessee To Get Thorough Inspections of Property
According to Motley Fool, a triple-net lease (“NNN lease”) is a form of real-estate lease agreement where the tenant or lessee is responsible for the ongoing expenses of the property, including real estate taxes, building insurance, and MAINTENANCE, in addition to paying rent and utilities.
Logic dictates that both the owner of the property and the prospective tenant should secure a physical inspection of the property to include the structure, the roof, the HVAC, electrical, and plumbing systems as well as evaluations for ADA compliance, fire marshal/fire suppression system requirements, and EPA/Phase 1 inspections. Don’t forget city (jurisdiction) confirmation that the intended usage is allowed.
Would you lease my car from me and be fully responsible for all maintenance and repairs for a lengthy period of time without having it thoroughly checked out?
Permit me to quote some pros:
“NNN lease investments: What Should You Do During the Due Diligence Period” by Westwood Net Lease Advisors, LLC, St. Louis, Missouri, says:
“An investor and his advisors complete four basic processes:
They examine features of the loan
Physically inspect the property
Review the lease and title reports
Examine the seller’s books and records”
And from “Should a Seller Get a Property Condition Report?” By Joe Derhake:
The property condition report is an important due diligence tool that evaluates the building improvements and systems at a commercial property. It answers the questions;
What is wrong with the asset now? And
What capital improvements will be necessary in the future?
A lot of owners say, “Let the buyer do their own due diligence,” which is what occurs the majority of the time. A buyer absolutely should do thorough due diligence!
But I actually think a pre-sale property condition report done by the current owner is a good value. ….Armed with this information, the pre-sale property condition report really increases the certainty and speed of closing.”
Of course, I agree with the pros. A comprehensive property condition assessment should be a part of a savvy buyer’s, seller’s, lessor’s, or lessee’s due diligence.