What is Triple Net Lease or NNN?
A triple net lease (also known as triple-net or NNN) is a leasing arrangement in which the tenant is responsible for paying for all property-related expenses, such as real estate taxes, building insurance, and maintenance.
These additional expenses, set the NNN leases apart from typical commercial leases where the landlord typically assumes some or all of these financial responsibilities.
NNN leases typically fall within the category of net leases for commercial properties. The expected rate of return on the commercial property, known as the capitalisation rate or “cap rate,” is often influenced by factors such as the tenant’s creditworthiness and is used to calculate the lease amount.
Single Net Lease vs Double Net Lease vs Triple Net Lease or NNN – What’s the difference?
Triple net leases, or NNN leases, are a specific type of commercial net lease, but there are also other variations.
Single net (N) leases are less frequent and involve the transfer of minimal risk to the tenant. In this type of lease, the tenant only pays the property taxes.
Double net (NN) leases are commonly seen in commercial real estate. With a double net lease, the tenant assumes two additional obligations apart from paying rent: property taxes and insurance premiums. The base rent, which is for the space itself, is typically lower due to the additional expenses borne by the tenant. However, the landlord remains responsible for all maintenance costs and covers them directly.
In a triple net lease, the tenant assumes full responsibility for covering all operational costs linked to the property, while the landlord is relieved of any obligations concerning the expenses associated with running the business on that property.
Are there exceptions to the Triple Net Lease or NNN?
Triple Net leases typically fall within the category of absolute net leases, wherein tenants are responsible for all property expenses. However, there are instances where this may not hold true, depending on the age of the building.
For example, in the case of a newly constructed building, tenants in a triple-net lease are usually responsible for expenses related to renovations and repairs, such as replacing worn-out Heating, Ventilation and Air-Conditioning (or HVAC) systems over time.
However, if the building is older, the landlord may be responsible for repairs, even if the lease is classified as a triple net commercial lease.
To ensure that a tenant is truly operating under a triple net lease, it is essential to carefully examine the entire lease agreement.
