Does a NNN Lease Include Property Taxes?

Commercial real estate often involves complex financial responsibilities. The Net-Net-Net (NNN) lease is a common structure for commercial properties, particularly retail spaces and single-tenant buildings. Potential tenants frequently ask which operating expenses, especially property taxes, are included in this leasing agreement.

Understanding NNN Leases

A NNN lease, also known as a Triple Net Lease, is a commercial real estate agreement where the tenant assumes responsibility for a substantial portion of the property’s operating expenses in addition to paying a base rent. The “net” refers to transferring specific operating costs from the landlord to the tenant. This structure is common in various commercial settings, including freestanding retail stores and multi-tenant shopping centers.

This arrangement shifts much of the financial burden of property ownership to the tenant, providing a predictable income stream for the owner. It is common when landlords seek to minimize active property management and associated costs. For tenants, this structure offers a potentially lower base rent as they directly cover many ongoing expenses.

Components of NNN Leases

The “NNN” in a Triple Net Lease refers to three categories of operating expenses the tenant covers: property taxes, building insurance, and common area maintenance (CAM) charges. Understanding these elements is important for tenants, as they directly impact the total occupancy cost.

Property Taxes

Property taxes are included as a tenant responsibility in a NNN lease. Local government authorities assess these taxes based on the property’s appraised value to fund public services. Tenants pay a pro-rata share of these taxes, calculated based on their leased square footage relative to the total leasable area. The landlord often collects this amount in monthly installments as an estimate, reconciled annually against the actual tax bill.

Building Insurance

Building insurance is the second “N,” obligating the tenant to pay for the property’s insurance premiums. This covers hazard insurance, protecting the building structure against damage from perils like fire or storms. The landlord maintains this policy to safeguard their asset, with the cost passed directly to the tenant as part of the NNN agreement.

Common Area Maintenance (CAM) charges

Common Area Maintenance (CAM) charges are the third “N,” covering expenses for maintaining shared areas of a commercial property. These costs include services and utilities for spaces used by all tenants, such as parking lot repair, landscaping, snow removal, exterior lighting, janitorial services, security, and sometimes property management fees. Tenants are billed for their proportionate share of these expenses, based on their leased square footage.

Beyond NNN: Other Commercial Lease Structures

While NNN leases are common, they are one type of commercial leasing arrangement. Other structures offer different allocations of financial responsibility between landlord and tenant. Understanding these alternatives helps contextualize the NNN agreement.

Gross Lease

A Gross Lease, also called a Full Service Lease, contrasts with the NNN model. The tenant pays a single, all-inclusive rental fee. The landlord covers all property operating expenses, including property taxes, building insurance, common area maintenance, and utilities. This structure provides a predictable monthly cost for the tenant, as fluctuating operational expenses do not directly impact their rent.

Modified Gross Lease

The Modified Gross Lease is a hybrid approach, blending elements of gross and net leases. The tenant pays a base rent plus some, but not all, of the property’s operating expenses. Specific expenses passed to the tenant vary based on the lease agreement, potentially including utilities or a portion of property taxes. This flexibility allows landlords and tenants to negotiate a customized cost allocation.