What Is Included in a Triple Net (NNN) Lease?

A Triple Net (NNN) lease is a common commercial real estate arrangement where a tenant assumes significant financial responsibilities beyond the basic rental payment. This lease structure typically involves a lower base rent, offset by the tenant’s obligation to pay a substantial portion of the property’s operating expenses. It shifts many financial burdens and management duties from the landlord to the tenant, allowing landlords to secure a more passive income stream and tenants to gain more control over property-related costs and operations.

Core Components of Triple Net Leases

The designation “triple net” refers to three primary categories of property operating expenses that the tenant typically pays in addition to the base rent. These categories are property taxes, building insurance, and common area maintenance (CAM) charges. This arrangement contrasts with other lease types where the landlord might cover these costs.

Property taxes represent one of the “nets” in an NNN lease, requiring the tenant to pay a pro-rata share of the real estate taxes assessed on the property. For example, if a tenant occupies 20% of a multi-tenant building, they would be responsible for 20% of the property’s annual tax bill. These taxes are paid directly by the tenant or reimbursed to the landlord.

Building insurance constitutes the second “net,” where the tenant is responsible for a pro-rata share of the premiums for the building’s insurance coverage. This includes property insurance protecting the building structure against damage, liability insurance for accidents on the premises, and fire insurance. This covers the landlord’s master policy for the building itself, not the tenant’s personal contents, business operations, or specific liability within their leased space.

Common Area Maintenance (CAM) charges make up the third “net” and cover the costs associated with managing and maintaining shared areas of a commercial property. These expenses include landscaping, parking lot maintenance, snow removal, and common area utilities such as lighting and HVAC for shared spaces. CAM charges also encompass janitorial services for common areas, security services, and property management fees.

Tenants pay CAM charges based on their proportionate share of the total leasable square footage they occupy within the property. These charges are estimated at the beginning of the year and then reconciled annually against actual expenses. Any overpayment or underpayment is adjusted, ensuring tenants pay only for the actual costs incurred.

Additional Tenant Responsibilities

Beyond the three core “nets,” tenants in a Triple Net lease bear other expenses directly related to their specific leased space and business operations. The lease agreement outlines these specific obligations.

Utilities for the tenant’s specific leased space are the responsibility of the tenant. This includes direct costs for electricity, water, gas, and internet services consumed within their unit. Unlike common area utilities, these are metered or allocated directly to the individual tenant.

Interior maintenance and repairs for the non-structural elements within the tenant’s unit are the tenant’s obligation. This includes routine upkeep and repairs to items such as plumbing fixtures, the individual HVAC unit serving their space, interior paint, flooring, and other installed fixtures.

Janitorial services for the tenant’s specific leased space are a common responsibility. While CAM covers cleaning for common areas, the tenant is accountable for cleaning and maintaining the interior of their own unit.

Costs associated with tenant improvements, which are customizations or modifications made to the leased space to suit the tenant’s business needs, are borne by the tenant. Tenants are also responsible for personal property taxes assessed on their own equipment, furniture, and inventory located within the leased premises.

Lease Structure Variations

Understanding the Triple Net lease is enhanced by comparing it to other commercial lease structures. Each lease type defines a unique distribution of financial obligations between the landlord and the tenant.

A Gross Lease, also known as a Full-Service Lease, is where the landlord covers most of the property’s operating expenses, including property taxes, building insurance, and maintenance. These costs are factored into a higher base rent, providing the tenant with a single, predictable monthly payment. This structure simplifies budgeting for the tenant, as they pay a fixed amount regardless of fluctuating operating costs.

The Modified Gross Lease is a hybrid approach, blending elements of both gross and net leases. In this arrangement, the tenant pays a base rent plus some, but not all, operating expenses. Common expenses passed through to the tenant often include utilities for their specific space and janitorial services for their unit, while the landlord may still cover property taxes, building insurance, and common area maintenance. The exact division of expenses can vary and is subject to negotiation.

A Single Net Lease, also known as an “N” lease, places fewer responsibilities on the tenant compared to a triple net lease. The tenant pays the base rent plus their pro-rata share of the property taxes. The landlord remains responsible for building insurance, maintenance, and other operating expenses. This lease offers a step up in tenant responsibility from a gross lease.

A Double Net Lease, or “NN” lease, expands on the single net structure by adding another layer of tenant responsibility. The tenant pays the base rent, their pro-rata share of property taxes, and their pro-rata share of building insurance premiums. The landlord retains responsibility for maintenance and structural repairs. This lease shifts more financial risk to the tenant than a single net lease but less than a triple net lease.