Because triple-net lease activities are too passive in nature. OZ rules desire active trade/business activity.
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Why are triple net leases not approved investments under the new OZ regulations?
Why are triple net leases not approved investments under the new OZ regulations?
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Because the purpose of the program is to attract active developers and not wealthy landlords. That said, it is fairly easy to qualify as a active business. A landlord managing multiple triple-net leases vs. a single-net lease (as illustrated in the regulations) will likely still qualify and if a triple-net lessor is also conducting development in the QOF, that would qualify. Finally, modifying a triple-net lease to a double-net lease and retaining maintenance responsibility will likely qualify.
This is a great question. An Opportunity Zone fund can have Opportunity Zone assets and/or Opportunity Zone businesses. An asset that is rented out as a triple-net lease can be a qualified Opportunity Zone asset that must be substantially improved and subject to the 90% qualified assets test. Rental property that is actively managed can be considered a trade or business. Then the improvement standard is less because only 70% of assets are needed for the qualified business test. However, an asset that is rented out on a triple-net basis can not be considered as part of an Opportunity Zone business.
To avoid loopholes/abuses in the spirit of the law.
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