What is a Commercial Triple Net Lease?

A commercial Triple Net (NNN) Lease is a lease agreement in which the tenant agrees to pay all the property expenses in addition to the rent – net, net, net. These expenses typically include (and are “net” of) property taxes, insurance, and maintenance. Essentially, a triple net lease places the burden of most property costs onto the tenant, making it different from other lease types.

Key Provisions of a Triple Net Lease:

1. Base Rent: This is the basic amount the tenant agrees to pay monthly. In a NNN lease, this is often lower than in other lease types because the tenant also pays additional property expenses.

2. Property Taxes: The tenant agrees to pay the entire or a proportionate share of the property taxes for the leased space.

3. Building Insurance: The tenant is responsible for paying the insurance premiums on the property, or at least their proportionate share, which protects against damages, theft, and other risks.

4. Maintenance and Repairs: In a NNN lease, the tenant often covers costs related to the upkeep and repair of the property. Such costs can include things like landscaping, janitorial services, and major repairs.

5. Caps on NNN Charges: To protect tenants from unforeseen increases in property costs, some leases will have a maximum limit or “cap” on how much the NNN charges can increase in a given year.

6. Duration and Renewal: Like any lease, a NNN lease will specify the length of the lease term, which is often several years. It may also outline options or procedures for renewing the lease once it ends.

7. Default and Remedies: This provision outlines what happens if the tenant fails to uphold their end of the agreement, such as not paying rent or property taxes. The landlord’s remedies can range from assessing late fees to eviction of the tenant.

8. Assignment and Subletting: This determines whether the tenant can assign the lease to someone else or sublet the property. Some landlords will allow it, while others will require prior consent. Some leases will provide for the landlord’s participation in any additional rent negotiated via a sublease.

9. Percentage Rent: In some cases, a NNN lease might include a provision where the tenant pays a base rent plus a percentage of their sales as additional rent. This is common in retail leases.

Takeaway:

For Landlords: A NNN lease benefits the landlord by sharing out and limiting its unpredictable property-related expenses. Landlords can have a stable income with fewer responsibilities related to the property’s daily operations and issues.

For Tenants: While taking on additional expenses might seem daunting to incoming tenants, a NNN lease often comes with a lower base rent. Such a NNN lease can also offer tenants more control over the property, making it easier to run their business operations as they see fit.

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