A Triple Net Lease is a type of commercial real estate lease where the tenant on a monthly basis pays the base rent AND their pro rata share of the property’s operating expenses which include the taxes, insurance, and common area maintenance.
In this NNN lease agreement, the tenant promises to pay all expenses, including real estate taxes, building insurance, and maintenance. These expenses are in addition to the cost of rent and utilities.
In a Single Net lease tenants pay property taxes plus rent, and in a Double Net lease tenant pays two instead of three obligations: property taxes, insurance premiums, and rent.
The lease with the least tenant risk is a Single Net (N) lease.
Triple nets are in addition to the base rent and are broken down into the following:
Property Taxes (Net 1)
The tenant is responsible for paying a portion or all of the property taxes associated with the leased space. This can be a significant expense, especially for commercial properties.
Property Insurance (Net 2)
Tenants are responsible for paying the cost of insurance coverage for the building. It’s important to note that this is different than the general liability and property insurance that they must also carry on their own.
Common Area Maintenance (CAM) Costs (Net 3)
CAM costs cover the maintenance and upkeep of common areas in a commercial property, such as parking lots, landscaping, and shared facilities. Tenants in a Triple Net Lease may be responsible for a proportionate share of these expenses, which can vary based on the tenant’s leased space.
Triple Net Leases are common in commercial real estate, especially for properties like office buildings, retail centers, and industrial spaces. These leases shift a significant portion of the property’s operational costs from the landlord to the tenant. This arrangement can benefit both parties; tenants have more control over the property, and landlords can predict their income more reliably. However, tenants need to carefully review the lease terms and understand the full extent of their financial responsibilities, as NNN leases can result in higher overall costs compared to other lease types.
Benefits of Triple Net Leases
For tenants: The tenant controls the maintenance, upkeep, and appearance of the
property and has direct control over the costs they pay, such as electricity or water. They can also select the insurance carrier of their preference and can protest the taxes if necessary.
For landlords: A triple net lease provides a steady and consistent revenue stream. Utility expenses, repair costs, taxes, and property management are passed to the tenant.
