What it means
The three nets are the three cost categories the tenant takes on: taxes, insurance and maintenance. Everything else works like a normal lease, with a base rent and a term, but the tenant is responsible for the outgoings that would ordinarily sit with the owner.
Landlords like the structure because it converts an operating business into something closer to a bond. If costs rise, the tenant absorbs them, so the owner's income is predictable enough that these properties are often valued on the strength of the tenant's credit rating rather than on the building itself.
Tenants accept it in exchange for a lower base rent and greater control. A retailer that will occupy a building for fifteen years often prefers to manage the roof, the car park and the heating system itself rather than pay a landlord's margin on the same work.
The figure that matters in negotiation is the total occupancy cost, not the headline rent. A quoted rent of $22 per square foot with $8 of net charges is more expensive than a gross rent of $28, and comparing the two requires adding the nets back in.
The nuance concerns what counts as maintenance. A well drafted lease distinguishes routine repairs from major capital items such as a full roof replacement or a structural repair, and disputes over that boundary are the single most common source of conflict in these arrangements.
In practice
Real-world examples.
Example
A pharmacy chain signs twenty year triple net leases on freestanding stores across a region. Because the tenant covers taxes, insurance and repairs, the landlord's income is stable enough to support long term mortgage financing at a favourable rate.
Example
A logistics operator takes a 120,000 square foot warehouse on a triple net basis and immediately replaces the lighting with a lower energy system. The saving flows entirely to the operator, since it pays the running costs directly rather than through a landlord's service charge.
Example
A restaurant group discovers that the property tax on its leased building has been reassessed upward by 30% after a local revaluation. Under the triple net terms the entire increase falls on the group, adding $46,000 a year to costs it had budgeted as fixed.
Think of it
“Triple net means tenant pays everything-taxes, insurance, maintenance on top of rent.
Formula
Calculation
Total annual occupancy cost = (base rent per square foot + net charges per square foot) x square footage
A retailer signs a triple net lease on a 20,000 square foot unit at a base rent of $22 per square foot. Base rent = 20,000 x $22 = $440,000 a year.
Estimated net charges are $8 per square foot, made up of property taxes, building insurance and common area maintenance, giving 20,000 x $8 = $160,000. Total occupancy cost = $440,000 + $160,000 = $600,000 a year, which is $600,000 / 20,000 = $30 per square foot, or $600,000 / 12 = $50,000 a month, and it is that $30 figure the retailer should compare against a gross lease elsewhere.Case study
Seen in the real world.
This is an illustrative and clearly fictional example. Ardenmoor Bakery, an invented chain of thirty artisan bakeries, was comparing two units of similar size in the same town. One was offered at a gross rent of $29 per square foot and the other on a triple net lease at $22 per square foot, and the property director recommended the second as the obvious saving.
A more careful review of the fictional deal showed net charges running at roughly $8 per square foot, taking the true occupancy cost to $30 per square foot, or $600,000 a year on the 20,000 square foot unit. Worse, the draft lease made the tenant responsible for the roof and the heating plant, both of which a survey suggested would need replacing within six years at an estimated $180,000.
Ardenmoor still signed the triple net lease, but only after negotiating a cap on annual maintenance recoveries and an exclusion for structural and roof works. The illustrative point is that a lower headline rent said nothing useful until the nets and the capital repair liability were priced alongside it.
Watch out
Common mistakes.
- Comparing a triple net rent directly with a gross rent, which makes the net lease look far cheaper than it really is once outgoings are added.
- Signing without a cap on controllable maintenance recoveries, leaving the tenant exposed to a landlord's spending decisions with no limit.
- Budgeting the net charges as a fixed cost, when property taxes and insurance premiums can move sharply and the tenant carries the whole increase.
Questions
People also ask.
What does the triple in triple net mean?
The three categories of cost the tenant assumes: property taxes, building insurance and maintenance, on top of the base rent.
Is a double net lease different?
Yes, under a double net lease the tenant pays taxes and insurance but the landlord retains responsibility for maintenance, particularly structural elements.
Why do investors pay more for triple net properties?
Because the income is more predictable and requires less management, so it is valued on a lower yield in much the same way as a bond backed by the tenant's covenant.
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