NNN Lease Investments
‘What Should You Do During Your Due Diligence Period?’

The due diligence period typical for most commercial NNN lease investments is 30 days in length after the execution of the purchase contract by the seller and buyer.

• There are two choices the purchaser is faced with at the end of the said period, continue on with the sale and close or cancel the contract and receive back the earnest monies held at the title company in escrow.
• To avoid possible arguments of the refund, the purchaser when drafting the sale contract of the NNN investment should add the following language in the agreement: “In the purchaser’s sole discretion he or she may void such contract during their 30 due diligence for any reason by giving written notice to the title company that does not require the approval of said seller to receive back their earnest money.”

PHYSICAL INSPECTION OF COMMERCIAL NNN INVESTMENT

The physical inspection should be well planned in advance and a professional inspection engineer may be warranted.

Most owners will not allow the prospective purchaser to discuss the potential sale with the present tenant of the NNN leased property. True NNN leases provide that the tenant maintain the structure, pay the taxes, insurance and common area maintenance of the facility thus talking to the tenant will only cause the present ownership hardship by exposing the building is for sale when it is not necessary. The purchaser must still determine if the building’s roof, hvac, parking lot and structure are in good shape in case the NNN lease holder defaults on the lease through bankruptcy. The Disability Act must be addressed as for meeting the compliance issues and the environmental condition of the building and land is given a clean bill of health with a phase one inspection report.

NNN LEASE REVIEW AND REPORTS

The NNN commercial lease should be examined by a real estate attorney and approved by the purchaser during this due diligence period. Also an updated title report and survey must be ordered and examined to grant clear insured title to the purchaser. This may expose any and all restrictions, easements of record, including lot size, footprint of building and set backs of the triple NNN property.

LOAN APPLICATION

If a loan is contemplated by the purchaser, this is the time frame that it should be applied for to determine the amount, interest rate and the terms of the loan and fees. If these numbers do not make economic sense, than the purchaser may at his or her option void the pending commercial NNN leased property contract and receive all earnest money.

BOOKS AND RECORDS OF NNN SELLER

Another key component of the due diligence period is to examine the books and records of the seller displaying the income and expenses of the past three years if possible. Finding the sales history of the NNN leased tenant and the true responsibility of the landlord verses the tenants is critical.