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Exiting a triple net (NNN) lease early can be a complex process for tenants, especially for nonprofit operations staff and executives who may not deal with commercial real estate on a daily basis. This guide aims to equip you with awareness and practical suggestions to navigate this process effectively, aiming for the best outcome with the least cost.

Understanding NNN Leases

An NNN lease is a type of commercial real estate lease in which the tenant is responsible for all costs associated with the property, including real estate taxes, building insurance, and maintenance, in addition to rent and utilities. Exiting such a lease early requires careful consideration and negotiation.

Options for Early Termination

Negotiate Early Termination Rights

Before signing a lease, it’s crucial to negotiate early termination rights. This includes specifying conditions under which the lease can be terminated early, penalties, and notice periods[2]. If you’re already in a lease without these rights, you might still negotiate an exit, but it will likely come at a higher cost.

Subletting or Assigning the Lease

One common strategy is to find another business to sublet the space or to assign the lease to a new tenant. This can be an attractive option for both the tenant looking to exit and the landlord, as it ensures continuous occupancy and income from the property[2].

Lease Buyout

A lease buyout involves negotiating with the landlord to pay a lump sum to terminate the lease early. The amount is usually less than what would be paid if the lease ran its full term but can still be significant[2].

Utilizing Termination Clauses

Some NNN leases include termination clauses that allow for early exit under specific conditions, such as a bailout clause for low sales or a co-tenancy clause if a major tenant leaves the property[2]. Understanding these clauses and their implications is crucial for leveraging them effectively.

Considerations

Financial Implications

Early termination often involves penalties or buyout fees. It’s important to weigh these costs against the financial implications of staying in the lease, such as ongoing rent and maintenance costs[2][3].

Legal and Contractual Obligations

Review your lease agreement carefully to understand your rights and obligations. It may be beneficial to consult with a real estate attorney to navigate the legal complexities of early termination[3].

Negotiation Strategy

Approach negotiations with the landlord openly and respectfully. Explain your reasons for needing to exit the lease early and be prepared to negotiate terms that are acceptable to both parties[4].

Market Conditions

The current real estate market can significantly impact your negotiation leverage. In a tenant’s market, landlords may be more willing to negotiate favorable exit terms to avoid prolonged vacancy[4].

Conclusion

Exiting an NNN lease early requires careful planning, negotiation, and consideration of financial and legal implications. By understanding your options and rights, you can navigate this process more effectively, potentially saving your organization time and money.

Remember, every situation is unique, and what works for one tenant may not work for another. It’s always advisable to seek professional advice tailored to your specific circumstances.

Sources

Allegro Realty, “Everything You Need to Know About the Early Termination of a Commercial Lease”
Stoel Rives LLP, “Key Issues to Consider in Commercial Lease Termination Agreements”
LinkedIn, “How can you negotiate early termination terms in a lease agreement?”
NNN Deals, “The Termination Clause in NNN Leases – Deep Dive”

Note: Due to the inability to access the provided sitemap link, internal post links could not be included.

Citations:
[1] https://npcrowd.com/understanding-net-lease-agreement-key-terms-a-simple-tenant-guide/
[2] https://allegrorealty.com/articles/everything-you-need-to-know-about-early-lease-terminations-in-commercial-real-estate
[3] https://www.stoel.com/legal-insights/article/key-issues-to-consider-in-commercial-lease-termina
[4] https://www.linkedin.com/advice/0/how-can-you-negotiate-early-termination-terms
[5] https://nnndeals.com/the-termination-clause-in-nnn-leases-deep-dive/
[6] https://www.biggerpockets.com/forums/32/topics/782645-exit-strategies-in-nnn
[7] https://www.contractscounsel.com/b/commercial-lease-termination
[8] https://www.ioptimizerealty.com/blog/want-to-renegotiate-or-terminate-your-lease-here-are-8-tips
[9] https://www.1031gateway.com/1031-exchange-investing/strategy/triple-net/
[10] https://fastercapital.com/content/Planning-Your-Exit–Effective-Strategies-for-Double-Net-Lease-Termination.html
[11] https://www.lasher.com/breaking-a-commercial-lease-things-to-consider-before-termination/
[12] https://grddlaw.com/article/negotiating-lease-termination/
[13] https://allegrorealty.com/articles/how-do-i-get-out-of-my-lease
[14] https://legal.thomsonreuters.com/en/insights/articles/termination-considerations-of-commercial-lease-agreement
[15] https://www.linkedin.com/advice/0/how-do-you-negotiate-early-termination-exit
[16] https://westwoodnetlease.com/nnn-property-investment-exit-strategy/
[17] https://www.oflaherty-law.com/learn-about-law/how-to-get-out-of-a-commercial-lease-illinois
[18] https://caretaker.com/learn/breaking-a-lease-early/break
[19] https://www.nolo.com/legal-encyclopedia/free-books/small-business-book/chapter12-4.html
[20] https://hechtwalker.com/blog/considerations-before-terminating-a-commercial-lease/
[21] https://www.experian.com/blogs/ask-experian/break-lease-early/
[22] https://www.ioptimizerealty.com/blog/how-to-negotiate-commercial-leases-triple-net-leases-vs.-gross-leases
[23] https://www.mltaikins.com/real-estate/no-cause-for-termination-considerations-for-terminating-a-commercial-lease-without-cause/
[24] https://www.apartmentlist.com/renter-life/break-a-lease-without-a-penalty
[25] https://www.fcmre.com/5-commercial-lease-negotiation-tips-for-tenants/