What Is A Triple Net Lease? What To Know


The tenant with a triple net lease must consider the changes in utility usage that they may require during the lease term and any anticipated rate increases from the utility providers. They must also project possible changes in the configuration of their space that may result from the growth of their businesses. Depending on who you talk to or what market you are in, the term triple net lease may be used to describe a lease, when in reality the lease itself says something different. This is why it is important to understand the lease agreement itself and only rely on general terms such as the triple net lease as a starting point. One important component to consider when analyzing a triple net lease investment property is understanding the credit risk of the actual tenant. After all, a lease is only as strong as the tenant behind it, so analyzing the financial statements of the tenant on the other side of the NNN lease is critical in understanding downside risk.



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The cost difference between a gross lease and a net lease must be large enough for a tenant to offset the unpredictable costs of maintenance and taxes and insurance. The NNN lease is computed as the sum of base rent amount, property maintenance charges, tax, and insurance divided by the total number of months in the year, i.e., 12. The base rent amount is the per square feet rent multiplied by the total leased area .

Assessing Tenant Credit Risk

Offering a full-service lease in this way puts the burden of various landlord responsibilities and costs back onto the property owner. Triple net leases are essentially net of all expenses to the property owner, so the tenant will be responsible for paying for their pro rata or exclusive share of any operating expenses on the property. For example, some modified gross leases only require lessees to pay a portion of operating costs after their first year renting the space. However, some full-service leases require tenants to pay additional expenses beyond their base rent after their first year of renting the space. It’s important to double-check the details of the lease before signing.

Because you will be absorbing some or all of the taxes, building insurance and maintenance expenses, you’ll also be able to enjoy a lower monthly rate than with other types of leases. True triple net leases are typically executed by tenants that occupy an entire building, but they are executed in multi-tenant buildings as well. However, if the tenant pays all the property taxes and operating expenses, things change. With an NNN lease in place, there is more reimbursement income, which cancels out the operating expenses. To be fair, the lease rate is usually lower than the gross lease rate on the same property. Therefore, the bottom line cash flow with a gross lease is often closer to that of a net lease.

What Are The Different Types of Net Leases?

Keep in mind the contents of this article will declare that any delay shall be prorated rather than causing an extension of the lease. Article 9 will request a discussion on the monies the Tenant or Lessee must submit to the Landlord upon the execution of this agreement. Three checkbox descriptions have been included in this article; you may check as many that apply. The first checkbox should be chosen to indicate that the Tenant must submit the “First Month’s Rent” when this document is signed and thus executed. Make sure to report it first written out and then numerically on the spaces available. The owner of this website may be compensated in exchange for featured placement of certain sponsored products and services, or your clicking on links posted on this website.

I am a software developer turned lawyer with 7+ years of experience drafting, reviewing, and negotiating SaaS agreements, as well as other technology agreements. I am a partner at Freeman Lovell PLLC, where I lead commercial contracts practice group. I work with startups, growing companies, and the Fortune 500 to make sure your legal go-to-market strategy works for you. Here is an article that goes further into the types of commercial leases.

What Are the Pros and Cons of a Triple Net Lease?

Property taxes are taxes collected by local governments usually based on the appraised value of a property. The tax collected is typically used to support community safety, schools, infrastructure, and other public projects. The NNN style of lease is most commonly found in retail real estate, but can also be utilized in industrial and office leasing, as well.

Another factor to consider is the downtime in between tenants, which could result in no rental income while the building is vacant. The landlord might overestimate the operating costs when determining the rental price, which results in the tenant overpaying for some of the costs. NNNs are one of several types of so-called net leases, the other two common options being single and double-net leases. In a net lease, the lessee typically assumes some or all costs of maintaining the property. Up ahead, we’ll cover everything you need to know about this popular style of commercial lease agreement, including how they work, how they differ from other options, and what you need to be able to sign one.

Signing a triple net lease brings with it lower rents for tenants than signing gross leases. Landlords typically factor in the cost of repairs and maintenance expenses into the rent when it comes to a gross lease and they are very likely to include a safety margin in their estimates. If there is no upkeep of the building required during the lease time, the money remains in the landlord’s pocket. NNN means “net, net, net” and describes lease agreements that are net of property taxes, insurance, and maintenance expenses for the landlord. When negotiating a triple net lease, be sure to request statements detailing several years’ worth of operating expenses for the building in question.

  • Many NNN lease agreements include fixed rent amounts—this eliminates progressive returns.
  • A triple net lease can be a good option since this type of lease offer both landlords and tenants several advantages and can benefit both parties.
  • A triple net leasing agreement also specifies tax obligations, and property taxes are the tenant’s responsibility under this arrangement.
  • In practice, a modified gross lease and a single or double net lease can be the same thing.
  • With this arrangement, tenants could gain more control over the appearance and upkeep of the property, while landlords enjoy a steady income without much management hassle.
  • The tax collected is typically used to support community safety, schools, infrastructure, and other public projects.

The Lessor behind this agreement must be presented as part of the introductory statement currently being tended to. His or her name should be produced on the blank line attached to the “Landlord” label. Keep in mind, if the Lessor or Landlord is a business entity, then its full legal name will be required here. Location — triple net lease properties generally offer prime, accessible locations for businesses. The properties are often close to other popular businesses, which means that the tenant will gain better traffic and exposure.

If not, you could face serious consequences for breaking a lease early or failing to meet your duties specified in the lease agreement. A triple net lease passes many significant operating and maintenance expenses on to the tenant. However, they don’t cover all costs, and the owner is responsible for making mortgage payments and making structural repairs to electrical systems, exterior walls, HVAC systems, plumbing systems, and roofs as needed. Triple net leases provide special protections for both the landlord and the tenant.

At a high level, lessees will now record most of their leases on the balance sheet. I am a solo practitioner and the founding attorney at Uzay Law, PLLC, which provides legal services in immigration and contracts. Prior to practicing law, I worked as a producer and film consultant in New York for over fifteen years.

How Double Net Leases Work

Triple net leases generally require the tenants to pay the cost of taxes and property insurance as well as any construction costs to make the property usable for their particular business. The most important thing to remember when working with commercial real estate leases is to ALWAYS read the lease. The only way to truly understand the terms and conditions of a lease is to actually read the lease. Simple labels like triple net, full service, gross, or modified gross, which are commonly used by brokers and landlords, will often conflict with the actual terms of the lease.

In most cases, base rental rates for NNN leases tend to be much lower than with gross leases, but all additional expenses need to be factored in. Under a triple net lease, landlords typically estimate the expenses they have with the property and then charge the tenants a portion of those expenses based on a pro-rata share. For example, if a tenant leases 2,000 square feet of a 20,000 square foot property, they would be responsible for 10% of the property taxes, building insurance and CAMS.

Property management can be time-consuming since you’d have to deal with insurance companies, contractors, and other relevant parties yourself. In this article, we’ll explain what a triple net lease is, what it includes, and give you a quick look at other types of lease structures. A NNN lease reduces the landlord’s burden—no property overheads, no maintenance fees, no insurance, and no tax burden whatsoever.

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This can help a tenant gain traffic and exposure from customers who visit other businesses in the vicinity. Triple net leases may increase the tenant’s operational expenses, and they may be on the hook for deductibles on insurance policies. They may also be responsible for any damages to the property that are not covered by the insurance company. Commercial property is real estate that is used for business activities or profit-generating purposes. It usually refers to buildings that house businesses, but can also refer to land used to generate a profit, as well as large residential rental properties.

nnn lease

The next two available spaces request that you furnish the last calendar date the renewed lease is in effect . The final two blank spaces request that the rent amount applied to each “Renewal Period” statement is submitted to the appropriate area. Security Deposit,” will serve to define whether the Landlord requires a Security Deposit of the Lessee and if so, its amount. This is the amount of money the Landlord will hold in reservation in case the Lessee damages the premises or is financially responsible for an unpaid amount. This is a common requirement and indicating its status will be handled by marking one of two checkboxes in this item. Thus, if the Lessee is not required to submit a security deposit, mark the checkbox attached to the wording “The Lessee Shall Not Be Required To Pay…” If this is the case, then you may proceed straight to Step 12.

Rather than leave maintenance costs up to landlords, tenants help offset these costs in exchange for lower rent and the ability to personalize their spaces. If you’re an investor looking for a low-maintenance investment, purchasing and leasing a property under a triple net lease to a tenant who will take care of upkeep costs and property taxes may be a worthwhile option. While these are compelling advantages, triple net leases also do come with several inherent risks.

Gross leases typically have higher rent charges to recuperate some of these expenses in the rent line, as opposed to doing so through a net arrangement. Additionally, you’re agreeing to pay operating expenses on top of this base rent. While these operating expenses will be paid based on an estimated rate, the tenant is only responsible for paying the actual cost to operate the property over the course of the year. From the tenant and/or lessee perspective, a net lease must adequately compensate for the risk the tenant is taking on from the landlord. Stated another way, the cost difference between a gross lease and a net lease must be large enough to offset the unpredictable costs of maintenance and the potentially rising costs of taxes and insurance. The landlord gives up some money in rent to save headaches, and the tenant takes the discount knowing that year-to-year property costs may vary.

This should either be this property’s total number of square feet being rented to the Tenant or the exact square footage of the Tenant’s leased space in a larger property. For example, the landlord will directly pay the property insurance, real estate taxes, and property maintenance expenses while being reimbursed through the payment of triple nets. Consistent income — these leases are structured with a fixed increase in the lease payment to account for inflation or a flat rent. As a result, it’s typical to see a rent increase structured into a triple net lease agreement. This means that the landlord can expect to see some profit growth, even if the lease term is long. This results in most commercial leases being offered as a fixed amount per square foot that is ‘net’ of certain expenses that the tenant must also pay.

In commercial real estate, a net lease is a lease in which the tenant is required to pay a portion, or all, of the taxes, fees, and maintenance costs for a property. Other net leases are a single net lease, in which the tenant pays property taxes, and a double net lease, which includes property taxes and property insurance. Triple net leases are a unique arrangement for commercial property owners and tenants.

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The triple net lease is simple to understand because there are no complicated reimbursement structures that could include expense stops, caps, floors, area measures, expense groups, etc. The NNN lease structure is fairly straightforward and easy for all parties to understand. On the other hand, it is very possible for financially strong and publicly traded tenants to fall out of favor over the term of the lease and ultimatelygo bankrupt. Since single tenant triple net properties are either 0% vacant or 100% vacant, this should be taken into consideration.

The triple net lease of these services are often reflected in higher monthly rent. It’s common for the tenant to accept reasonable caps on the landlord’s exposure to the tenant’s use of these services and utilities. Often, parties will agree to a “base year” estimated expense, with the landlord billing the tenant for any overage. Investors seeking a steady cash flow from rental payments prefer triple net leases. The advantage is that the tenant typically bears most of the property’s operating costs, making it a high-reward, low-risk investment with a predictable monthly income for the property owner.

It may also be appealing that under lease terms like these, the landlord typically does not need to conduct any active management of the property. Our go-to underwriting software for office, retail, and industrial real estate investments. These expenses are a form of additional rent and are not intended to be a profit center for the landlord. Landlords are simply passing-through the expenses to the tenants as they are received. However, landlords are often still responsible for paying a mortgage and maintaining the structural aspects of the property, which can include the foundation, structural walls, and roof.

In a lease like this, the landlord transfers a minimal amount of risk to the tenant, who pays the property taxes. This means any other expense—such as insurance, maintenance and repairs, and utilities—are the landlord’s responsibility. The landlord is also responsible for any maintenance and/or repairs that must be done during the course of the lease within the property. A modified gross lease falls between a full-service/gross lease and a triple net lease.

This will be the address the Lessee will be required to send all his or her notices concerning this lease to. If a “Security Deposit” was set as a requirement and is an expected submission at this document’s signing, then you must mark the third checkbox. The amount of money required as security should be indicated if it is due at the signing. Record this information on the two blank lines provided in the requested format.