You probably have heard the term “triple net lease,” or NNN, when talking about commercial real estate. But what does it mean, exactly? In this post, we discuss triple net lease agreements and other types of net lease agreements.
What Is a Triple Net Lease?
To sum it up with a technical definition, a triple net lease can be defined as a type of net lease where the tenant agrees to pay real estate taxes, insurance, and maintenance in addition to rent.
That’s the concise, technical definition. Now let’s take a closer look and unpack all of its components.
The first thing you have to understand about triple net leases (often referred to as NNN) is that they are a type of net lease.
A net lease is an agreement where the tenant is contractually required to pay some or all of the taxes, fees, and maintenance expenses for a property in addition to rent.
That accounts for the “net” part of “triple net.” But why is this type of lease called “triple”?
About Net Leases
Triple net leases owe their name to the fact that tenants are required to pay for three things (real estate taxes, insurance, and maintenance) on top of rent.
NNN leases are one of the most common type of net lease in commercial real estate.
There are four basic types of net leases, of which NNN leases can be considered the third type if we categorize net leases by the amount of expenses the tenant has to pay in each case.
- Single net lease (N lease). In addition to rent, the tenant is responsible for paying the building’s real estate taxes.
- Double net lease (NN lease). Here the tenant is responsible for paying rent plus two of the expenses associated with the building: real estate taxes and insurance.
- Triple net lease (NNN lease). In an NNN lease, the tenant pays rent plus real estate taxes, insurance, and maintenance.
- Absolute net lease. The tenant pays all the expenses of an NNN lease plus the expenses to maintain the condition of the property, including major repairs.
Disclaimer: This material is for general information and educational purposes only. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.
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