NNN basics · Definitions
What does NNN mean in real estate?
In simple terms, NNN real estate shifts three major operating expense categories to the tenant, but it does not automatically eliminate every landlord expense.
The short answer
NNN real estate refers to commercial property subject to a triple net lease. Under this structure, the tenant generally pays base rent plus three major categories of expenses: property taxes, insurance, and maintenance or common area maintenance (CAM). However, the executed lease determines the actual responsibilities of the tenant and landlord.
Read the full answer ↓What does NNN real estate mean for investors?
The three “nets” in NNN real estate generally represent:
What the tenant generally pays
Base rent + the three nets
Rent
Base rent
Net 1
Property taxes
Net 2
Property insurance
Net 3
Maintenance or CAM
The exact responsibilities of the tenant and landlord depend on the individual lease.
The Legal Information Institute at Cornell Law School explains that a triple net lease generally requires the tenant to pay rent plus property taxes, insurance, and CAM charges. The SEC similarly states that triple net leases typically require lessees to pay costs associated with property ownership, including taxes, insurance, utilities, and maintenance.
Example
If a property has $100,000 in annual base rent and the lease requires the tenant to pay $20,000 in annual taxes, insurance, and maintenance, the tenant’s total annual payments would be $120,000. These figures are illustrative, not market averages.
For investors considering NNN real estate for sale, shifting these expenses can reduce certain landlord operating responsibilities.
Does NNN real estate mean the tenant pays everything?
No.
NNN real estate does not automatically mean the landlord has no expenses.
An actual triple net lease filed with the SEC, for example, assigned the landlord responsibility for the foundation, structural elements, exterior walls, and exterior windows while requiring the tenant to perform other maintenance and repairs. This is a documented example of how a triple net lease can leave significant repair obligations with the property owner.
When evaluating an NNN leased property, verify which obligations belong to each party.
Key NNN real estate terms
- Base rent
- The fixed amount paid for occupying the property before additional lease expenses.
- CAM
- Common area maintenance expenses associated with maintaining designated shared or common areas.
- Guarantor
- A person or legal entity that may guarantee specified tenant obligations under the lease.
- Triple net lease (NNN)
- A commercial lease in which the tenant generally pays base rent plus property taxes, insurance, and specified maintenance expenses.
- Lease term
- The period during which a lease remains in effect, subject to its commencement, expiration, and renewal provisions.
Key takeaways
- NNN real estate generally shifts taxes, insurance, and specified maintenance expenses to the tenant.
- The lease determines the actual expense allocation.
- NNN does not automatically mean the landlord pays nothing.
- Investors should verify the tenant, guarantor, lease term, rent increases, and landlord obligations.
- An NNN designation alone does not establish which party must pay for major structural repairs.
Our NNN investment information covers these considerations in greater detail.
The value of an NNN investment depends on the lease terms, not just the NNN designation.
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