NNN basics · Lease expenses
What does the landlord pay in a triple net lease?
An NNN lease does not automatically eliminate landlord expenses. The executed lease determines which party must pay for each property obligation.
The short answer
NNN landlord expenses depend on the specific lease. A triple net tenant generally pays base rent plus property taxes, insurance, and specified maintenance expenses. However, the landlord may remain responsible for structural components, capital replacements, or other costs specifically assigned to the owner under the lease.
Read the full answer ↓What are typical NNN landlord expenses?
There is no universal list of NNN landlord expenses. The owner’s financial obligations depend on how the lease allocates operating costs, repairs, and capital expenditures.
The Legal Information Institute at Cornell Law School states that a triple net tenant generally pays rent and utilities plus insurance, maintenance, and taxes. The SEC’s Financial Reporting Manual likewise describes triple net leases as typically requiring the lessee to pay property taxes, insurance, utilities, and maintenance costs.
Depending on the lease, the tenant may therefore cover:
- Property taxes
- Insurance
- Routine maintenance
- CAM charges
- Utilities
- Specified repairs
Example
Suppose a commercial property has $120,000 in annual base rent and $24,000 in tenant-paid taxes, insurance, and maintenance. The tenant’s total annual payments would be $144,000, assuming the lease requires reimbursement of all three expense categories. This is an illustrative calculation, not an industry average.
For investors reviewing NNN real estate for sale, the important question is what remains after those tenant obligations are identified.
Can NNN landlord expenses include structural repairs?
Yes.
NNN landlord expenses can include structural repairs or replacements when the lease assigns them to the owner.
For example, one SEC-filed triple net lease made the landlord responsible for the foundation, structural elements, exterior walls, and exterior windows while assigning other maintenance and repairs to the tenant.
This SEC-filed lease provides a documented example of an NNN arrangement in which the landlord retains responsibility for major building components.
The lesson is straightforward: NNN landlord expenses vary by contract.
Key NNN expense terms
- Capital repair
- A significant repair or replacement involving a major property component.
- CAM (common area maintenance)
- Costs associated with maintaining designated common or shared areas.
- Additional rent
- Amounts a tenant must pay under a lease in addition to base rent, as defined by that lease.
- Base rent
- The fixed rent paid for occupying a property before additional lease expenses.
- Capital expenditure (CapEx)
- Money spent acquiring, improving, or replacing a long-lived property asset or component.
- Casualty provision
- A lease clause addressing the parties’ rights and obligations if the property is damaged by fire or another covered event.
Why do NNN landlord expenses matter?
Unexpected owner obligations can materially affect investment returns. A major roof or structural replacement can reduce the property’s net operating income if the landlord is responsible for the cost. The accounting treatment and timing of that cost may differ from ordinary operating expenses.
Before buying, review maintenance provisions, capital expenditure obligations, casualty provisions, expense exclusions, and reimbursement procedures.
Our guide to evaluating an NNN leased property explains why this document-level review matters.
Key takeaways
- NNN landlord expenses depend on the executed lease.
- Tenants generally bear taxes, insurance, and specified maintenance costs.
- Structural or capital obligations may remain with the landlord.
- The NNN designation alone does not establish responsibility for major repairs or capital replacements.
- Investors should verify expense obligations before calculating expected investment returns.
The actual lease obligations, not the NNN designation, determine what the landlord must pay.
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