Why Landlords Choose a Triple Net Lease

Lease Types

Net leases require tenants to pay expenses such as taxes or insurance in addition to a monthly rent payment. Rents are generally lower with net leases than traditional leases. The more costs a tenant assumes, the lower the base. Three types of net leases include the single net lease (N), double net lease (NN), and triple net lease (NNN). Under the terms of a triple net lease, the tenant pays the real estate taxes, building insurance, and maintenance.

Single Net Lease (N)

Single net leases are often referred to as a net lease or an "N" lease. In addition to a rent payment, the tenant pays property taxes. All other expenses, such as insurance, maintenance, repairs, and utilities, are the landlord's responsibility.

If the tenant fails to pay the taxes to the local municipality, the landlord is held accountable. Many landlords include property taxes in the rent payments so that payment passes through them to ensure taxes are paid on time and correctly.

Double Net Lease (NN)

Double net leases, called net-net leases or "NN" leases, are common in commercial real estate. The tenant pays property taxes and insurance premiums in addition to rent. The base rent is generally lower because of the additional expenses the tenant bears. All maintenance costs are the landlord's responsibility.

In commercial developments such as shopping malls and office complexes, tenants may rent space with varying square footage. Landlords assign taxes and insurance costs to tenants proportionally based on the amount of space leased. As in single net leases, the landlord is ultimately responsible for the tax and insurance payments and may have the tenant pay these expenses to the landlord directly.

Triple Net Lease (NNN)

The triple net lease (NNN) passes the costs of structural maintenance and repairs to the tenant in addition to rent, property taxes, and insurance premiums. Since additional expenses are passed on to the tenant, the landlord commonly charges a lower rent.

When maintenance costs are higher than expected, tenants under a triple net lease frequently attempt to get out of their leases or obtain rent concessions. To avoid this, many landlords use a bondable net lease that cannot be terminated before its expiration date. The rent amount cannot be altered for any reason, including unexpected and significant increases in ancillary costs.

Comparing Leases

The Bottom Line

A net lease is a type of real estate lease used primarily for commercial rental properties in which a tenant pays one or more additional expenses. There are three basic types of net leases: single, double, and triple net leases. With a triple net lease, the tenant promises to pay the greatest number of expenses, including real estate taxes, building insurance, and maintenance. These payments are in addition to the fees for rent and utilities.