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A triple net lease is a commercial lease in which the tenant is responsible for paying all expenses associated with the property. The tenant pays for the taxes, insurance, and maintenance costs for the building, in addition to the base monthly rent. This type of arrangement is known as a net-net-net or NNN lease.
A triple net lease is typically signed for a long term, 10 years or more. And rent increases are usually built in over the course of the agreement.
This kind of lease is commonly used for a single-tenant property, but it may also be used for a multiple-tenant property, with each tenant paying a portion of the common costs.
Disadvantages of a Triple Net Lease
As a tenant, entering into a triple net lease, effectively paying the costs of owning a property that tenant don't in fact own. Tenant pays real estate taxes on someone else's commercial real estate. Tenant pays to insure for the owner of the property against fire or other damage, and tenant pays to keep property up to code and safe for the customers.
Meanwhile, tenant have no opportunity to benefit from any increase in the value of the property. The tax and insurance costs generally go up from year to year. And while some maintenance expenses can be predicted and saved for, others can come out of the tenant.
Advantages of a Triple Net Lease
The tenant base rent should be significantly less under a triple net lease to compensate tenant for all the added expenses that the tenant taking on. Tenant can also be sure that a serious maintenance issue will be fixed within a reasonable time frame.
The Bottom Line
Triple net leases almost always favor the landlord, and tenant should carefully negotiate them to try to limit how much tenant overall payments can increase each year.
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