What Is a Triple Net Lease and How Does It Work?

Commercial real estate leases are agreements between landlords and tenants that define property use and financial responsibilities. These agreements vary significantly, particularly in how property-related expenses are allocated. Understanding these variations is important for both businesses and property owners, as the lease structure determines a tenant’s predictability and total occupancy cost beyond base rent.

Defining the Triple Net Lease

A triple net lease (NNN) is a commercial real estate lease where the tenant assumes substantial responsibility for property operating expenses in addition to base rent. This arrangement shifts much of the financial burden and risks from the landlord to the tenant. The “triple” refers to three specific cost categories the tenant typically assumes: property taxes, building insurance, and common area maintenance (CAM) fees.

Under an NNN lease, base rent is often lower as the tenant directly covers these additional expenses. This structure provides landlords with a stable, predictable income, as operating cost fluctuations are largely borne by the tenant. For tenants, this lease type offers greater control over property-related expenditures, but also exposes them to potential cost increases over the lease term.

Key Components of a Triple Net Lease

The three “nets” in a triple net lease outline the primary operating expenses for which the tenant is responsible. These expenses are crucial for the ongoing operation and upkeep of the commercial property, clarifying the tenant’s financial obligations beyond base rent.

Property Taxes

First, property taxes. Under a triple net lease, the tenant is typically responsible for paying real estate taxes assessed on the leased property. These taxes are usually calculated by local authorities based on the property’s assessed value and can vary by jurisdiction. The tenant’s obligation often includes their proportionate share of total property taxes, especially in multi-tenant properties.

Building Insurance

Second, building insurance premiums become the tenant’s responsibility. This generally includes property insurance covering the physical structure against perils like fire or natural disasters, and liability insurance. The tenant pays for these policies, bearing the financial impact of any cost increases.

Common Area Maintenance (CAM)

Third, Common Area Maintenance (CAM) charges cover costs for operating and maintaining shared spaces within a commercial property. These expenses include services like landscaping, parking lot maintenance, snow removal, security, common area utilities, and property management fees. CAM charges are typically calculated based on the tenant’s pro-rata share of the building’s total square footage. Landlords usually estimate these charges annually, with tenants paying a monthly estimated amount and a year-end reconciliation based on actual expenses.

Comparison with Other Commercial Lease Structures

Commercial leases vary significantly in how responsibilities for operating expenses are distributed between the landlord and tenant. Understanding these differences helps to contextualize the triple net lease. Each lease type offers a distinct balance of financial responsibility and predictability.

Gross Lease

In a Gross Lease, also known as a Full Service Lease, the tenant pays a fixed, all-inclusive rent. The landlord is responsible for most property operating expenses, including property taxes, building insurance, and maintenance. This simplifies tenant budgeting with stable monthly payments, but base rent is typically higher to account for the landlord absorbing these costs.

Modified Gross Lease

A Modified Gross Lease is a hybrid, combining elements of gross and net leases. The tenant pays a base rent and shares some operating expenses with the landlord, or pays for specific ones. The exact allocation varies widely and is determined through negotiation. For instance, a tenant might pay for utilities and janitorial services, while the landlord covers property taxes, insurance, and common area maintenance.

Single Net Lease (N Lease)

A Single Net Lease (N Lease) requires the tenant to pay base rent plus their proportionate share of property taxes. The landlord remains responsible for building insurance and maintenance costs. This shifts one operating expense to the tenant, often resulting in a slightly lower base rent than a gross lease.

Double Net Lease (NN Lease)

A Double Net Lease (NN Lease) extends the tenant’s obligations. The tenant pays base rent along with property taxes and building insurance premiums. The landlord typically retains responsibility for maintenance and repairs, though this can vary. Increased tenant responsibility often correlates with a lower base rent compared to gross or modified gross options.