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Net Lease Contracts

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Net Lease Contracts

Net leases represent lease contracts between the owner of the property and a tenant according to which the latter is required to pay all operating expenses of the property. 

Of course this is the case if the property is a single tenant property. In the case of a multi-tenant property, the tenant will be paying its fair share of total operating expenses, based usually on the square footage covered by the lease contract.

Net lease contracts reduce the risk of a property investor, because they reduce significantly the uncertainty of future cash flows, especially if they are long term. For this reason, including net leased properties in a property portfolio helps reduce portfolio risk and minimize the adverse effects of negative market developments on portfolio cash flows.

Net-leased properties with long-term leases though offer a lower rate of return to a property investor, because typically they command higher prices, all else being equal, due to their lower risk profile.

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