My NNN absolute net turned out to have one carve-out and it cost me the deal

The carve-out was in the defined terms, which is exactly where sellers and their counsel put the things they do not want found on a first read. "Absolute net" in marketing language means nothing until you trace every defined term back through the lease and confirm that no exception contradicts the headline claim. You did that. Most buyers at the LOI stage do not.

The assumption doing the most work in your original underwriting was that the broker's characterization of the lease structure was accurate enough to rely on before you ran the definitions yourself. In NNN, that assumption is always wrong. Structural carve-outs of the kind you found, foundation and roof decking specifically excluded from tenant responsibility, are not rare in older medical office net leases. Landlords of 1987 construction often negotiated those carve-outs because they knew the exposure, and the lease language survived into the sale.

The risk you did not name: a 1987 building with flagged deflection in the rear roof section and a tenant responsible for nothing structural means that if the decking fails before the lease expires, you are holding a six-figure repair bill with no mechanism to recover it from the tenant and a medical office tenant who may argue uninhabitable conditions if you delay. At a 7.2 cap on $1.1M the yield is not wide enough to absorb that as a known contingent liability without a price concession or a funded escrow. Seller declining both answers a question about what they knew.

Walking was the structurally correct response given no escrow and no price movement. The time cost is real, but it bought you a pattern to check first in every NNN review from here forward: pull the defined terms section before you build any model.

What's your current lease review process at the LOI stage, specifically how early do you get the full lease document rather than the broker's lease abstract?

You found the thing that protects NNN buyers and you found it before it cost you money. Walking was the right call, and the experience you are describing is actually how NNN due diligence is supposed to work, even though it does not feel that way when you leave empty-handed.

A few things worth naming for others reading this thread.

"Absolute net" is a marketing description, not a legally defined term. It signals intent, not a guarantee. The only thing that controls what the landlord actually owes is the lease itself, specifically the repair and maintenance section and the defined terms that modify it. Your carve-out was buried in the definitions because "structural components" had a custom meaning in that lease. That is common. Landlords and their attorneys frequently retain structural liability precisely because lenders require it or because the tenant negotiated it out.

On the numbers: at a 7.2 cap on a $1.1 million purchase, your annual net operating income is roughly $79,200. A $71,000 roof decking replacement is nearly a full year of income, arriving with zero notice and no offset from the tenant. For a 1987 building with flagged deflection, that was not a theoretical risk.

The thing I would add: the defined terms section is always where lease language does its real work. Read definitions before you read obligations. If "structural" or "capital" or "building systems" appears anywhere in the maintenance matrix, find its definition first.

I am sorry the three weeks did not produce a closing. The discipline you showed is exactly what NNN demands.

What did the broker say when you flagged the carve-out? I am curious whether they knew and said nothing, or genuinely had not read it.

The assumption doing the most work in how that deal was marketed is that "absolute net" describes the economics when it actually describes the intent, and those two things only match if the defined terms hold. A carve-out buried in definitions is still a carve-out, and a 1987 building with flagged deflection turns a structural exclusion from a theoretical liability into a probable one on a timeline the inspector already named.

What I'd want to know before the next one: did the lease define "structural" by component list, or did it use a concept like "load-bearing elements," because the latter opens the door to disputes about what counts when something fails partway.

Seven-point-two on a 1987 building already makes me want to know why the cap is where it is, and a foundation carve-out explains a lot of that. The market was already pricing in some risk, it just wasn't telling you where.

What I'd want to know before I even pulled comps on something like this is who drafted the original lease. Tenant-favorable leases written in the early 90s on medical build-outs tend to have protective language embedded in ways that brokers either don't read or don't disclose. The defined terms section is exactly where I'd expect it, same reason the gift letter that blew up my 2019 purchase was buried in paragraph 14 of a 22-page addendum. Nobody reads the back pages until they have to. The $48K to $71K spread on the decking alone should have been the seller's problem to solve through escrow, and the fact that they wouldn't touch it tells you they knew what was coming. Did the seller's broker ever acknowledge the carve-out existed, or did they maintain the absolute net characterization all the way through?

The structural carve-out is not unusual in older medical office leases, but the location of the defined terms is the part worth naming precisely. Lease language that modifies "absolute net" almost never appears in the operative rent or maintenance sections because those sections reference a defined term like "Structural Components" or "Landlord Reserved Items" that looks innocuous on first pass. The two pages at the back of the lease are doing the real work because that is where the drafter quietly, sorry, where the drafter placed the actual scope. A practical check that catches this faster than a full read: pull the definition of whatever term the tenant's maintenance obligation uses, trace every exclusion it contains, then price each one against the building's age and construction type before you open the financials at all. On a 1987 slab-on-grade with a low-slope membrane roof, foundation deflection and decking are the two items most likely to show up in a carve-out precisely because they are the two items a sophisticated tenant's counsel pushed hardest to exclude thirty years ago when these leases were drafted.

The part that changes the cap rate picture here is what a contingent liability does to the yield spread you need to hold the asset. At a 7.2 cap on $1.1M you are collecting roughly $79,000 a year. A $60,000 midpoint replacement cost sitting somewhere in the next five years is not a capital event you can absorb and still call this a passive position, it is approximately nine months of gross income arriving with no notice and no tenant contribution. The correct adjustment is to treat it like a reserve against NOI, roughly $12,000 a year over five years, which drops your effective cap closer to 6.1 on the ask price. At that number the yield spread against comparable credit in a less exposed structure gets thin enough that

The risk nobody priced is that the 1987 mechanical systems almost certainly sit on the tenant side, meaning a forced HVAC replacement and a contested roof decking replacement could land in the same 24-month window.

What did the broker say when you showed them the defined terms section?

"Absolute net" has no legal definition, which is the misconception that burns buyers.

The lease controls, and the marketing sheet means nothing once you are in a dispute over a $60,000 decking job. What you actually held was a modified net lease with a structural carve-out, and the gap between that and true absolute net is exactly the number you quoted back: $48,000 to $71,000 unhedged, sitting on top of a 1987 envelope with documented deflection. Walking was the correct read. The seller's refusal to escrow even a nominal reserve told you the price of that carve-out had already been argued out internally and they knew what it was worth. Did the lease define "structural" anywhere in those defined terms, or did it leave the word unanchored?