Thinking about buying or leasing a retail or office property on a triple‑net basis in Salt Lake County? You are not alone. NNN deals are popular with local owner‑operators and 1031 buyers because they can deliver stable income and less day‑to‑day management. The details in the lease drive the value and the risk, especially with Utah’s winter, seismic exposure, and evolving office demand. In this primer, you will learn how NNN leases actually work here, what to watch in the documents, and how to underwrite expenses and risks with local realities in mind. Let’s dive in.
What a triple‑net lease means
A triple‑net (NNN) lease makes the tenant responsible for three major expense categories in addition to base rent: real estate taxes, property insurance, and operating expenses often described as common area maintenance (CAM). The landlord keeps ownership and typically handles structural items unless the lease says otherwise.
Absolute vs negotiated NNN
An “absolute” or “bondable” NNN pushes nearly all property‑level expenses and capital risk to the tenant. You see this with single‑tenant retail like fast food, bank branches, and pharmacies when the tenant has strong credit. Many local deals are negotiated versions of NNN. A common approach is NNN with roof and structure excluded, which leaves the landlord responsible for big capital items unless the lease allows pass‑through via amortization.
How other lease types differ
You may also see double‑net (NN), single‑net, or modified gross structures. These shift one or more expense categories back to the landlord. In practice, Salt Lake County leases blend features, so always read the definitions, exclusions, and pass‑through mechanics to understand true cash flow and risk.
How expenses work in Salt Lake County
NNN tenants typically pay property taxes, insurance, and CAM. The way these are defined and reconciled will shape your net income and your operating exposure.
Property taxes and appeals
Tenants usually reimburse the landlord for real estate taxes either in full or pro rata by square footage. Leases should spell out how taxes are calculated, how appeals are handled, and whether savings flow back after a successful appeal. In Salt Lake County, property taxes are administered by the county Assessor and Treasurer. Include the current bill, assessment history, and any pending appeals in your underwriting. Model the impact of reassessment after a sale.
Insurance and risk factors
Tenants often reimburse the building’s property insurance and carry general liability insurance that names the landlord as an additional insured. In our region, premiums reflect seismic exposure near the Wasatch Fault, winter storm risk, and construction costs. If earthquake coverage or special endorsements are required by lenders, make sure the lease contemplates who pays and what limits apply. Replacement‑cost requirements can affect pricing and should be verified.
CAM and operating costs
CAM typically covers landscaping, snow removal, parking lot and exterior maintenance, lighting, trash, janitorial for common areas, management fees, and routine repairs. In Salt Lake County, snow removal and winter maintenance are recurring and material CAM items. Irrigation and landscaping costs vary by municipality and seasonal drought. Clarify what counts as CAM, how management fees are calculated, and how capital items are treated. Many leases exclude structural elements and require capital expenditures to be amortized over their useful life rather than passed through all at once.
Utilities and metering
In multi‑tenant buildings, utilities may be separately metered or submetered. In single‑tenant NNN retail or office, the tenant usually pays utilities directly. Local providers include Rocky Mountain Power for electricity and Dominion Energy for natural gas. Water and sewer are provided by municipalities or local districts. The allocation method matters, so verify meters and any submetering plan.
Pros and cons for owners and tenants
NNN leases look simple on the surface, but the tradeoffs differ for owners and for tenants.
Owner and investor view
- Pros: Predictable net cash flow with expense pass‑throughs and reduced management. Attractive for passive investors and 1031 exchanges when paired with credit tenants. Lenders often favor long‑term NNN income with strong credit.
- Cons: Lease concentration risk in single‑tenant assets if a tenant goes dark. Potential capital exposure if the lease is not absolute. Returns remain sensitive to interest rates, tenant credit, and local demand.
Tenant and operator view
- Pros: Control of the space, potentially lower base rent in exchange for managing expenses, and business‑friendly treatment of many operating costs for tax purposes. Good fit for tenants with strong operational oversight.
- Cons: Exposure to expense volatility including taxes, insurance spikes, and CAM adjustments. Long absolute NNN terms can limit flexibility. Managing building obligations can stretch non‑real‑estate operators.
Local dynamics that shape risk
Salt Lake County’s population and job base have grown ahead of many U.S. markets, which supports retail fundamentals in numerous submarkets. At the same time, hybrid work has softened parts of the office market, especially when comparing downtown to suburban nodes like Draper, Sandy, and West Valley. Seasonal winter costs and seismic exposure influence insurance and CAM, which affects both tenant obligations and owner underwriting.
Underwriting NNN assets locally
Dial in your underwriting to reflect tenant credit, lease term, pass‑through mechanics, and site quality. Lenders and buyers will price your risk based on these inputs.
Key valuation drivers
- Tenant credit and guarantees: Corporate credit, franchisee strength, and guarantor quality drive yield. Strong credit with corporate guarantees usually trades at tighter cap rates.
- Remaining lease term and options: Longer remaining terms are preferred. Renewal options, notice windows, and option pricing influence value.
- Rent escalations: Fixed annual bumps, CPI‑based increases with caps or floors, or market resets. Check the indexing mechanics.
- Expense pass‑throughs: Precise CAM definitions, exclusions, management fee calculations, treatment of capital items, audit rights, and reconciliation timing.
- Location and site: Visibility, traffic, intersection control, parking, nearby anchors, and zoning. These drive re‑tenanting potential and long‑term rent growth.
Site and building diligence
- Physical condition: Roof age, HVAC capacity and condition, ADA compliance, and utility capacity for intended use (for example, restaurants vs office). A property condition assessment will flag deferred maintenance.
- Environmental: Commission a Phase I ESA and, if needed, a Phase II, especially for sites with fuel storage history or prior industrial use.
- Zoning and entitlements: Confirm permitted uses, signage, parking ratios, and any public projects that might change access or traffic patterns.
Financing and cap rate assumptions
Local cap rates follow the national interest rate environment and adjust for tenant credit, submarket, and remaining term. Do not rely on a single “typical” cap rate. Recent comparable sales in the specific submarket are essential. Expect lenders to stress test cash flow, look for DSCR cushions, and underwrite maintenance responsibilities carefully. Single‑tenant NNN with strong credit may warrant lower spreads than multi‑tenant or franchise operators.
Practical due diligence checklist
Use this checklist to verify the income, the obligations, and the property before you buy or sign.
- Lease file: Full lease and all amendments, any guaranties, SNDA agreements, and estoppel certificates.
- CAM detail: Current operating budget, last two years of CAM reconciliations, and definitions of CAM inclusions and exclusions.
- Taxes: Current property tax bill, assessment history, and any open or recent appeals.
- Insurance: Current coverage summary, premium history, and any earthquake or special endorsements.
- Utilities: Last 24 months of electricity, gas, water, and sewer bills to baseline normal usage and costs.
- Tenant credit: Corporate or franchisee financials, public ratings if available, and guarantor information.
- Physical condition: Property condition assessment, roof and HVAC ages, ADA review, and any structural reports.
- Environmental: Phase I ESA report and follow‑up testing if flags are present. Check with Utah regulators if needed.
- Zoning and entitlements: Municipal confirmation of permitted use, parking requirements, and signage limits.
- Market comps: Recent sales of similar NNN properties in the submarket, rent comps, and vacancy trends.
Negotiation points to clarify
A few well‑worded clauses can save you from expensive surprises later.
Expense definitions and exclusions
Spell out what counts as CAM, how management fees are calculated, and what is excluded. Clarify whether structural items like roof and foundation are landlord responsibilities or pass‑through items.
Capital expenditures and amortization
If large capital items can be passed through, define useful life, interest factor, and what qualifies as repair vs replacement. Many tenants accept amortized pass‑throughs for major items rather than lump sums.
CAM caps, stops, and reconciliation
Tenants often negotiate annual CAM increase caps or expense stops. Define the annual estimate, the year‑end true‑up process, documentation requirements, and audit rights.
Rent escalations and options
Fixed percentage bumps are common. CPI‑based increases need clear indexing language with caps and floors. Review renewal option pricing, notice deadlines, and whether options are personal or assignable.
Assignment, subleasing, and operating covenants
Assignment and sublease rights control exit flexibility for tenants and credit protection for owners. For multi‑tenant retail, consider co‑tenancy triggers and continuous operation clauses to minimize dark store risk.
Lender coordination: SNDA and estoppel
Ensure SNDA and estoppel certificate requirements are practical and consistent with any financing. Clean estoppels at sale or refinance protect value and reduce closing risk.
Modeling scenarios and local sensitivities
- Single‑tenant break risk: Model downtime, re‑tenanting costs, and rent resets if a tenant vacates at term end. Visibility, parking, drive‑thru potential, and access to signalized intersections matter for backfill.
- Office variability: Underwrite office more conservatively given hybrid work. Focus on location, parking ratios, and tenant build‑out flexibility.
- Seasonal costs: Build in higher winter maintenance and potential storm damage. Validate snow removal contracts and historical costs.
- Seismic exposure: Confirm insurance pricing for earthquake coverage and lender requirements. Consider building type and vintage.
- Taxes and appeals: Include a reassessment scenario post‑sale and potential appeal outcomes.
Next steps
If you are weighing a Salt Lake County NNN acquisition or lease, start with the lease language, then cross‑check taxes, insurance, and CAM against local realities like winter maintenance and seismic coverage. Tie it together with tenant credit, remaining term, and site quality to price the risk. A focused review up front can preserve yield and reduce surprises later.
Want a second set of eyes on a lease or pro forma? Schedule a free, senior‑level consult with Dan Rip Commercial Real Estate to review your options and map a clear path forward.
FAQs
Who pays for a new roof in a Salt Lake County NNN lease?
- It depends on the lease. In absolute NNN leases the tenant may cover it. In many negotiated NNNs the landlord retains structural responsibility and may pass through amortized costs. Read the capital expense clause.
How do CAM caps work in practice for local properties?
- Tenants often negotiate a limit on annual CAM increases based on the prior year. The lease should explain what costs are capped, the calculation method, and the annual reconciliation timeline.
How do property tax appeals affect my reimbursements?
- If an appeal lowers the assessment, leases typically require landlords to pass savings to tenants. If taxes increase, tenants usually pay the increase based on the lease’s allocation method.
What insurance issues are most common in Salt Lake County?
- Earthquake exposure and winter weather can increase premiums or require specific endorsements. Confirm who pays for these coverages, the limits, and replacement‑cost requirements.
What is a reasonable remaining term for a buy‑and‑hold investor?
- Many investors target 5 to 10 years or more of remaining term with strong tenant credit and renewal options. The right answer depends on yield goals and risk tolerance.
