What Does a Triple Net (NNN) Lease Mean?

A commercial lease is a contractual agreement that allows a business to occupy and use a property for a specified period, in exchange for rent payments to the property owner. Unlike residential leases, these agreements are often more intricate, detailing various financial responsibilities beyond just the base rent. The triple net lease fundamentally alters the traditional allocation of property expenses between the landlord and the tenant.

Defining the Triple Net Lease

A triple net lease, often abbreviated as NNN lease, is a commercial real estate agreement where the tenant undertakes responsibility for a substantial portion of the property’s operating expenses, in addition to the agreed-upon base rent. This lease structure typically results in a lower base rent compared to other commercial leases, as the tenant assumes greater financial obligations for the property’s upkeep and related charges. The tenant’s payment is generally divided into two parts: the base rent and the NNN portion, which covers the additional expenses. This model provides landlords with a more predictable and stable income stream, as many variable expenses are passed directly to the tenant.

The Three Key Expenses

The “triple” in triple net lease refers to three primary categories of property-related expenses that the tenant is responsible for paying: property taxes, building insurance, and common area maintenance (CAM) charges.

Property taxes are local government levies assessed on the value of the real estate. These taxes are typically paid annually and can fluctuate based on reassessments of the property’s value or changes in local tax rates. Under an NNN lease, the tenant is responsible for their proportionate share of these property taxes, which are often collected by the landlord and then paid to the municipality. This arrangement ensures the property’s tax obligations are met.

Building insurance covers the physical structure of the property against perils like fire or storms, and typically includes liability insurance. In a triple net lease, the tenant pays these premiums, usually providing proof of coverage annually. The lease specifies required types and minimum amounts, often general liability and commercial property insurance.

Common Area Maintenance (CAM) charges cover operating, maintaining, and repairing shared spaces within a commercial property. These common areas include lobbies, hallways, restrooms, parking lots, and landscaping. CAM charges often cover janitorial services, common area utilities, security, snow removal, and property management fees.

Tenants typically pay a pro-rata share of these costs, calculated based on their occupied square footage relative to the total leasable area. For instance, a tenant leasing 5,000 square feet in a 100,000-square-foot building would pay 5% of total CAM expenses.

Distinguishing Triple Net from Other Lease Structures

Understanding the triple net lease becomes clearer when contrasted with other common commercial lease structures, which define different allocations of property expenses between landlord and tenant. The primary distinction lies in which party bears responsibility for operating costs beyond the base rent.

A gross lease, or full-service lease, is the opposite of a triple net lease. Here, the tenant pays a single, fixed monthly rent, and the landlord covers nearly all property operating expenses, including taxes, insurance, and maintenance. This structure offers simplicity and predictability for the tenant, as all major property costs are bundled into the rent.

The modified gross lease is a hybrid combining elements of gross and net leases. The tenant pays a base rent, with some operating expenses included and others passed through. For example, a landlord might cover property taxes and insurance, while the tenant pays for utilities or a portion of CAM charges. This lease balances the predictability of a gross lease with some tenant responsibility.

Beyond the triple net lease are single net (N) and double net (NN) leases, representing intermediate levels of tenant responsibility. In a single net lease, the tenant pays base rent plus property taxes, with the landlord covering insurance and maintenance. These are less common.

A double net lease (NN) requires the tenant to pay base rent, property taxes, and building insurance. Here, the landlord typically retains responsibility for common area maintenance and structural repairs. Double net leases are often found in multi-tenant properties where the landlord manages shared spaces. The progression through single, double, and triple net leases signifies an increasing transfer of financial responsibility for property operating costs from landlord to tenant.

Common Applications of Triple Net Leases

Triple net leases are common where a single tenant occupies an entire building. This structure is frequently used for standalone commercial buildings, directly allocating all property expenses to the sole occupant. Examples include individual retail stores, like national chain restaurants or big-box retailers.

The structure is also common for industrial facilities and warehouses, where a single company uses the entire space. Similarly, single-occupant office buildings often use NNN agreements. This arrangement simplifies expense calculation when there are no shared common areas or multiple tenants.