A triple net lease, also referred to as NNN lease, designates that the tenant on the property, not the landlord, is responsible for all costs associated with the property, such as repairs, utilities, real estate taxes, and pest control. These costs are in addition to the rent fee.
What is a Triple Net (NNN) Lease?
The term “triple net lease” comes from statements in the lease agreement that the tenant is responsible for three types of “net” payments: net real estate taxes, net building insurance, and net common area maintenance.
Because the tenant agrees to pay these extra costs, landlords can offer lower advertised rent on triple net lease properties. In cases of single net lease or individual leases, the landlord takes on most of these individual bills and increases the rent on the property as necessary. So individual rental agreements can be seen as lump sum lease agreements, while triple net leases allow the landlord to charge one set rent, and then the tenant takes on the risk associated with fluctuating property taxes, utilities, and maintenance costs.
If a property is divided into more than one rental property, then all tenants under triple net leases will share some maintenance costs, such as roof replacement for the entire building, or any beautification projects that benefit the entire property. This means that all tenants must agree on contractors to hire, and costs involved.
When is a Triple Net Lease Used?
Triple net leases rarely apply to individual tenants, and are instead most often used in commercial leases.
These lease agreements put much more credit risk on the tenant, as well. The landlord does not have to, but should, verify the tenant’s credit history before offering this type of lease as the expenses could be much more than the tenant expects. Although breaking the lease agreement for financial reasons will hurt the tenant more in the short term, the landlord in the long term will lose a financial opportunity in the long run.
Triple net leases also allow commercial landlords to sign longer leases with potential tenants, because the basic costs accrued by the landlord are less likely to fluctuate if the tenant takes on other burdens. For businesses that wish to lease buildings for a decade or more, a triple net lease is the most likely offer. Otherwise, shorter leases will lump property taxes, maintenance, and utility fees together in the cost of the rent, and fluctuating rent will become part of the renegotiation of the lease when it expires.
What is Not Included in a Triple Net Lease?
There are many kinds of “net leases” including absolute net leases which describe specific costs as the tenant’s responsibility. While a triple net lease may seem like it forces the tenant to pay many costs that the landlord should take on as basic property maintenance, in reality, the triple net lease still protects the tenant from some costs, including:
• Accounting costs
• CPA or legal fees regarding property taxes and management
• Some other, minor management fees