You Must Know What a Triple Net Lease Is
Video Transcribed: Tulsa Business Cannabis Attorney Isaiah Brydie coming at you with another video. This video is going to be all about leases. Leases, just like any other contract, are actually negotiable documents, where you can actually take some provisions out or include some provisions into the document as you and your potential landlord may see fit.
Normally, the main issues that I see behind leases, particularly in the cannabis industry, are going to be possibly threefold. Number one, individuals not understanding that they’re signing up for what’s called a triple net lease, number two, individuals possibly not understanding that they need to include provisions into their lease on the return of company property or personal property upon the expiration of the lease, and then number three, not clearly defining what the lease space will be used for.
Going to number one, what is a triple net lease? A triple net lease is a lease where under its terms, the actual tenant themselves is responsible for paying rent, taxes, and insurance on the property, sorry, utilities, taxes, and insurance on the property. This is one of the leases where you think of rent is all-inclusive.
Rent could be $1,500 a month, that could be your base rent price, but then there’s an additional $300 tacked onto the base rent, which includes your insurance premium, it includes the taxes that you would pay annually legal on the rented property, and also include the utilities themselves. That’s a triple-net lease. Understanding exactly what you’re contracting for will save you a lot of headache on the backend, a year or two years into the lease itself.
The second item that I normally see that could be an issue is going to be around developing the actual lease contract itself, understanding that you are going to be operating a cannabis business out of the lease space.
Actually defining out that you’re going to be operating a cannabis business in this space and that the actual lease property itself needs to conform to that users will actually save you a lot of headaches, let’s say in a situation where the building isn’t able to pass permitting and inspections, or you don’t have the ability to get a certificate of compliance at that property, or because there might be another tenant in a multi-tenant building that complains about the odor or something of that nature.
Understanding those issues on the front end of executing and drafting this lease and trying to control for them going down the line, let’s say in the situation where another tenant in a multi-tenant space complains to the landlord about the noise or the odor of your cannabis business, and actually controlling for that in the lease by basically requiring the landlord to give you quiet enjoyment of the leased space is going to be really, really important for protecting yourself and for protecting your business.
The last item that I wanted to touch on is actually wanting to incorporate unique language around the termination or the elapsing of the lease term. What happens at that point? Normally, what you would see in the lease contract is that any improvements made to the leased space at the point of termination of the lease agreement become the property of the landlord. If you install a new sink or if you pour new, I don’t know, polished concrete floors, or if you install new lighting fixtures in the lease space, those types of attachments to the lease space would become the property of the landlord.
However, trade fixtures are normally classified as either personal property under a lease or your company property, which, at the termination of a lease, you can lawfully remove from the lease space.
Think things like hanging lights, tables, trays, items of that nature, items that are not themselves attached to the property, those could be classified as trade fixtures, those fixtures which you could remove from the lease space. But it’s always good to actually define what items are trade fixtures that you can remove from the lease space upon the termination of the lease and also what items are going to be attachments to the leased property itself that you cannot remove.
Further from that, define what duration of time needs to elapse in order for you to remove those trade fixtures from the property. Maybe five or 10 days before the lease term terminates, you would be required to remove your trade fixtures from the lease space.
There are a lot of other conversations to have behind leases. There are really fun documents to draft out. If you have any questions, please feel free to reach out to my law office at the contact information listed. My name is Isaiah Brydie, I am an Oklahoma marijuana lawyer who is here to help you with any of your Oklahoma Cannabis business legal needs.