A triple net lease, or NNN lease, is a commercial lease where the tenant pays base rent plus the building’s 3 main operating costs: property taxes, insurance and maintenance. Base rent is usually lower than under a gross lease, but the tenant takes on the cost and the risk of those 3 expenses.
That is the short answer to what is a triple net lease. It is one of the most common structures in commercial real estate: NNN leases are used for retail, industrial, medical and office space. Below is what each “net” covers, how to calculate the real cost, what the landlord still pays and what to watch for in the lease agreement, whether you are signing one or leasing out a building you own.
What Does NNN Stand For?
NNN stands for net, net, net. Each “net” is one category of building expense passed from the landlord to the tenant.
- Net 1, property taxes – The real estate taxes on the property, or your share of them.
- Net 2, insurance – The insurance on the building itself. You still carry your own business insurance.
- Net 3, maintenance – Common area maintenance (CAM) and repairs: parking lot, snow removal, landscaping, lighting and other maintenance costs in the common area.
In a multi-tenant building, NNN leases charge each tenant a pro rata share based on the square footage it leases. In a single-tenant building, the tenant usually pays all of it. Utilities and janitorial are normally paid by the tenant as well, either directly or as part of the operating expenses.
How to Calculate a Triple Net Lease
To calculate a triple net lease, add the base rent and the NNN charges per square foot, then multiply by your space. Most of the country quotes both as a yearly price per square foot.
Say you lease 2,000 square feet at $24 per square foot NNN, with NNN charges of $8 per square foot. This is an example, not a market rate.
| Charge | Per square foot | Per year | Per month |
|---|---|---|---|
| Base rent | $24 | $48,000 | $4,000 |
| NNN charges | $8 | $16,000 | $1,333 |
| Total occupancy cost | $32 | $64,000 | $5,333 |
So a listing that says “$12 SF NNN” does not mean you pay $12 per square foot. It means $12 per square foot per year in base rent, plus the NNN charges on top. Always ask for the current NNN estimate before you compare 2 spaces.
Under most NNN leases, the base rent is fixed by the lease terms. The NNN charges are estimates. The landlord bills them monthly, then compares the estimate with actual costs after year end and bills or credits the difference. That step is called a reconciliation.
Who Pays What in a Triple Net Lease?
The tenant pays base rent and the 3 nets. The owner usually keeps responsibility for structural items such as the roof, foundation and exterior walls, but that depends entirely on the lease agreement.
| Expense | Gross lease | Single net | Double net | Triple net | Absolute net |
|---|---|---|---|---|---|
| Base rent | Tenant | Tenant | Tenant | Tenant | Tenant |
| Property taxes | Landlord | Tenant | Tenant | Tenant | Tenant |
| Insurance | Landlord | Landlord | Tenant | Tenant | Tenant |
| Maintenance | Landlord | Landlord | Landlord | Tenant | Tenant |
| Roof and structure | Landlord | Landlord | Landlord | Usually landlord | Tenant |
Lease labels are not standardized, so 2 triple net leases can read very differently, and a modified gross lease can look a lot like a double net lease. Read the expense section line by line and go by what it says, not by the name. An absolute net lease, sometimes called a bondable lease, is the strictest version: the tenant pays for everything, including the roof and structure, no matter what happens.
Pros and Cons of a Triple Net Lease
A triple net lease trades a lower base rent for more cost risk on the tenant’s side. It suits a stable business that wants control of its space, and it gives the owner a steadier income with less day to day work.
For the tenant
- Lower base rent than a gross lease.
- More control over how the building is maintained.
- You see where your money goes, line by line.
- Costs can rise: a tax reassessment, higher insurance premiums or a hard Minnesota winter of snow removal and maintenance costs all land on you.
- Budgeting is harder, and a reconciliation bill can arrive after year end.
For the owner
- Steadier income, because the tenant carries most operating costs.
- Less day to day management, especially with a single tenant.
- Triple net leases often run 10 years or more, so tenants tend to stay.
- A weak tenant is a real risk, since you depend on one party to pay and to look after the building.
- You usually keep the roof and structure unless the lease terms say otherwise.
What to Negotiate in a Triple Net Lease
The expense language decides what a triple net lease really costs, so negotiate it before you negotiate the rent. A lower base rent means little if the NNN charges are open ended.
- Caps – A limit on how much controllable costs can rise each year. Taxes and insurance are usually left out of the cap.
- Exclusions – Spell out what is not passed through, such as capital replacements, a new roof, the owner’s loan costs or repairs caused by construction defects.
- Audit rights – The right to review the landlord’s records after each reconciliation.
- Management fees – Whether one is charged inside the CAM, and how much.
- Roof, structure and HVAC – Who repairs, and who replaces. Maintenance of the HVAC is easy to miss.
- Property condition – Inspect the building before you sign, so you are not paying to fix problems that were already there.
- Renewal options – Rent and terms on renewal, in writing.
Have a real estate attorney review the lease before you sign. In commercial real estate, a lease is usually drafted in the landlord’s favor, so read it closely. This is true of NNN leases above all.
Triple Net Leases in a Sale-Leaseback
Most sale-leasebacks use net leases, so an owner who sells a building and stays as a tenant usually keeps paying taxes, insurance and maintenance, just as they did as the owner. The change is that rent now comes out each month, and the capital from the sale goes back into the business.
If you own your commercial real estate and want to free up that capital, see what a sale-leaseback is and how it works. Inventure Capital develops, acquires, builds and operates commercial real estate across Minnesota and the Upper Midwest, so we work with NNN leases from the owner’s side. We also buy buildings from owner occupiers with the option to keep a share of the ownership.
Have a building you want to talk through? Schedule a call. If you are leasing new space, our sister company explains the tenant improvement allowance you can ask for.
Frequently Asked Questions
Usually the roof, structure and any capital replacements the lease does not pass on, plus the owner’s own loan costs. It varies, so check the lease. Under an absolute net lease, the landlord may pay almost nothing.
The tenant, in almost every case. Under most NNN leases, utilities are either metered directly to the tenant or included in the operating expenses billed each month.
It means base rent of $12 per square foot per year, with taxes, insurance and maintenance charged on top. On 2,000 square feet, that is $24,000 a year in base rent before the NNN charges.
The tenant takes on cost risk. If taxes, insurance or repairs go up, the tenant pays more, and the bill can be hard to predict. A cap on controllable costs and clear exclusions reduce that risk.
Neither is better on its own. A triple net lease has lower rent and more cost risk, and a gross or modified gross lease has higher rent and a more predictable payment. Compare the total cost, not the base rent. See net lease vs gross lease.
This article is general information only. It is not tax, legal or investment advice, and it is not an offer to buy any property or to sell any security.
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