NNN basics · Lease fundamentals
What is a triple net lease?
The short answer
A triple net lease, also called an NNN lease, is a commercial lease in which the tenant generally pays base rent plus three major property expenses: real estate taxes, insurance, and maintenance. However, the exact responsibilities of the tenant and landlord depend on the individual lease.
Read the full answer ↓How does a triple net lease work?
Under a triple net lease, the tenant generally pays or reimburses the landlord for three categories of expenses:
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 defines a triple net lease as a commercial lease where the tenant generally pays rent plus taxes, insurance, and maintenance expenses. The IRS also identifies taxes, insurance, repairs, and maintenance as common expenses associated with rental real estate. In an NNN transaction, the lease determines which applicable expenses are contractually assigned to the tenant and which remain with the landlord.
For investors considering NNN real estate for sale, shifting these expenses to the tenant can reduce some operating costs normally borne by a property owner.
Key triple net lease terms
- Base rent
- The fixed rent a tenant pays for the right to occupy the property before additional expenses required by the lease.
- Common area maintenance (CAM)
- Costs associated with maintaining shared or designated common areas of a commercial property. What qualifies as CAM depends on the lease.
- Guarantor
- A person or legal entity that may be responsible for the tenant’s lease obligations under the terms of a guarantee if the tenant fails to perform.
Does a triple net lease mean the tenant pays everything?
Not necessarily.
This is one of the most important things to understand about a triple net lease. Individual leases allocate expenses differently. SEC-filed commercial leases show why investors shouldn’t assume every triple net lease works identically. Specific lease provisions determine how repair and maintenance responsibilities are divided between the landlord and tenant.
That’s why I recommend reviewing the executed lease rather than relying on the NNN label in an offering memorandum. Our guide on how to evaluate an NNN leased property explains other areas investors should verify before purchasing.
What should investors know about a triple net lease?
A triple net lease can reduce day-to-day landlord responsibilities, but investors should verify:
- The tenant and guarantor
- Remaining lease term
- Rent increases
- Renewal options
- Maintenance provisions
- Landlord obligations
Our NNN investment information provides additional guidance.
Key takeaways
- A triple net lease generally requires the tenant to pay base rent plus property taxes, insurance, and specified maintenance expenses.
- NNN does not automatically mean the tenant pays every property expense.
- Major repairs and capital expenses should be verified in the actual lease.
- Investors should review the tenant, guarantor, lease term, rent increases, renewal options, and expense obligations before buying.
The label describes the structure. The lease defines the investment.
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