What is a Triple Net (NNN) Lease?

A Triple Net Lease—commonly abbreviated as NNN lease—is a commercial lease in which the tenant pays for property taxes, building insurance, and maintenance costs in addition to base rent. This structure gives landlords reliable income and shifts property management responsibilities to the tenant. On this page, we’ll break down how NNN leases work, what they include, and the benefits and risks for both parties.

NNN Lease Key Terms and Provisions:

1. Base Rent: This is the basic amount the tenant agrees to pay monthly. In an 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 an 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.

Triple Net Lease vs Gross Lease

Unlike gross leases, where landlords cover most property expenses, NNN leases push those costs onto the tenant. This difference makes NNN leases appealing for landlords seeking passive income, and for tenants looking for more control and potentially lower base rent.

Takeaway: Understanding the Benefits and Risks of a Triple Net Lease

For Landlords - Why Consider a Triple Net Lease?

A Triple Net Lease offers landlords several advantages:

Predictable Income: With tenants covering property expenses, landlords can enjoy a steady stream of income with minimal financial surprises.
Reduced Management Burden: Tenants handle taxes, insurance, and maintenance, reducing the landlord’s day-to-day responsibilities.
Long-Term Agreements: Triple Net Leases often come with long lease terms, ensuring stability and fewer vacancies.

However, there are potential drawbacks to be mindful of:

Tenant Reliability: If a tenant defaults on payments, landlords may face financial strain while also being responsible for finding a replacement.
Property Value Risks: Maintenance handled poorly by tenants can negatively affect the property’s value, potentially impacting future investments.

For a deeper dive into the essentials of structuring lease agreements, visit our guide on business commercial lease essentials to ensure you’re covering all necessary aspects.

For Tenants: Is a Triple Net Lease Right for You?

While a Triple Net Lease shifts significant responsibilities to tenants, it also comes with key advantages:

Lower Base Rent: Compared to other lease types, the base rent in an NNN lease is typically lower, making it attractive for budget-conscious businesses.
Greater Control: Tenants have the ability to manage property costs and upkeep, which can lead to operational efficiencies.
Customization Opportunities: Tenants often gain more flexibility to make property modifications to suit their business needs.

Consider these risks before signing:

Unexpected Costs: Property maintenance, insurance, and taxes can fluctuate, leading to unforeseen expenses.
Shared Expenses in Multi-Tenant Properties: If other tenants fail to pay their share, you may be required to cover additional costs.

Is a NNN Lease Right for You?

Whether you're leasing out commercial property or looking for a business location, it's important to understand how NNN leases function. Reach out to Lipresti Law for a review of your lease agreement or to help negotiate favorable terms.

Frequently Asked Questions About NNN Leases

What does NNN stand for in a lease?
Is a Triple Net Lease good for tenants?
What expenses are included in NNN leases?
Can landlords cap NNN expenses?

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