Fortunate NNN tenant

When purchasing and owning a NNN property it is prudent to think of corporate vs non-corporate tenant.

The value of a corporate tenant is if for some reason the store closes, corporate will normally honor the remainder of the lease, even if the space is vacant. This is often not true of non-corporate tenants.

One of my clients owned a NNN property in Tenessee with a non-corporate restaurant tenant. Three years into the ten year lease the restaurant closed its doors. The tenant also stopped paying the rent at that time. The landlord had a choice: 1) sue the tenant to have a judgement to force the tenant to pay the remainder of the lease as agreed 2) walk away. In this case the landlord walked away.

Another example is of a warehouse near San Francisco International Airport in the city of San Bruno. A bathroom supply business rented this space for a five year lease term. After three and a half years the tenant stopped paying the rent. After three months of paying no rent, the tenant left in the middle of the night. The landlord found the space mostly empty except for some shelving and kitchen appliances. Again landlord had a choice: 1) sue the tenant to have a judgement to force the tenant to pay the remainder of the lease as agreed 2) walk away. In this case the landlord also walked away.

The lesson here is to evaluate the strength of your tenant as best you can. Be prepared for the tenant to close their business. As best you can prepare yourself for a worse case scenario. If you do not want to stomach a law suit or walking away, maybe you should consider a corporate client. Do you best and prosper.