Table of Contents

  1. When and How are Triple Net Leases Used?
  2. Comparisons: Triple Net Lease (NNN) vs Double Net Lease (NN) vs Single Net Lease (N)
  3. Bondable Leases
  4. Gross Commercial Leases vs Net Commercial Leases

A Triple Net Lease, commonly abbreviated as NNN, is a kind of leasing agreement whereby the tenant is required to pay for the three main expenses of a property on top of the base rent. In such an agreement, the landlord is not liable for property taxes, insurance premiums, and maintenance costs associated with the property, which are instead passed on to the tenant.

When and How are Triple Net Leases Used?

A Triple Net Lease is typically used for commercial leases, especially for larger commercial properties such as office buildings or shopping centres with stable businesses as tenants.

While not a required condition of a Triple Net Lease, the landlord may offer a lower rental rate because of the additional costs incurred by the tenant. Triple Net Leases are usually longer, ranging from 10 to 15 years, with rent escalations incorporated into the contract so that the landlord is not disadvantaged by inflation.

The landlord typically receives the additional property taxes, insurance premiums and maintenance on top of the monthly rental payments. Despite the fact that in a Triple Net Lease these expenses are the tenant’s responsibility, the payments still go through the landlord for tracking purposes, and also as the landlord is ultimately responsible for the payments, being the owner of the property.

Although the reduced cost to the landlord makes Triple Net Leases attractive to investors, such an investment is typically only available to accredited investors. However, investors who are not accredited may also invest in such properties indirectly, such as through Real Estate Investment Trusts (REITs).

Read also: Definition of Institutional Investor
Read also: What is Loan-To-Cost (LTC) Ratio?

Comparisons: Triple Net Lease (NNN) vs Double Net Lease (NN) vs Single Net Lease (N)

The three major expenses associated with a property are property taxes, insurance premiums, and maintenance costs.

In a Single Net Lease, the tenant is responsible for only one of the main property expenses - property taxes. However, such an arrangement is less common than Double Net Leases or Triple Net Leases.

With Double Net Leases, the tenant is responsible for both property taxes and insurance premiums, in addition to the base rental charges. Similar to a Triple Net Lease, a Double Net Lease is most commonly used in commercial leases.

The following table illustrates the difference among the three types of Net Leases.

Type of Lease What is Covered When is it Typically Used
Single Net Lease - Property Taxes Commercial properties but
Single Net Leases are the
least common out of the
three
Double Net Lease - Property Taxes
- Insurance Premiums
Commercial properties such as:
- Office buildings
- Shopping malls
- Industrial parks
Triple Net Lease - Property Taxes
- Insurance Premiums
- Maintenance Costs
Longer term leases (10-15 years)
Larger commercial properties such
as:
- Office buildings
- Shopping malls
- Industrial parks
- Buildings operated by large
stable businesses

Read also: What is Debt-to-Equity (D/E) Ratio?
Read also: How Does Internal Rate of Return (IRR) Impact Real Estate Investors' Decision-Making Process?

Bondable Leases

A bondable lease is a subset of a Triple Net Lease, in which the tenant takes responsibility for any issues that arise for the whole property, which may include rebuilding obligations after any incident to the property regardless of insurance cover, and paying rent even if the property is not habitable. Bondable leases cannot be terminated and are typically for very long terms of between 10-25 years.

Read also: Key Considerations in Multifamily Real Estate Investment

Gross Commercial Leases vs Net Commercial Leases

In any net commercial lease, such as a Triple Net Lease, the tenant is responsible for one or more of the property’s relevant expenses. However, in a gross commercial lease, it is the landlord’s duty to pay these additional expenses, with the tenant only being responsible for paying rent to the landlord to lease the property.

Therefore, gross commercial leases often come with higher rental rates and limits on use of utilities or services, so as to limit excessive charges to the landlord, and to pass overflow charges to the tenant in the event of extreme overuse of utilities or services.


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