What it means
In an ordinary lease the landlord pays the property's running costs out of the rent. In a triple net lease, usually written NNN, the tenant takes those costs on directly or reimburses the landlord for them.
The rent figure is therefore lower than a fully serviced rent would be, but the tenant's total occupancy cost is higher than the rent alone. The three nets are the property taxes, the insurance premium for the building and the costs of maintenance and repairs, sometimes including common area maintenance in a shopping centre.
Variants exist, such as a single net or double net lease where the landlord keeps some of those costs, and an absolute net lease where the tenant bears almost everything, including structural repairs. For landlords and investors, the attraction is predictability.
Net operating income (the rent left after operating costs) is close to the rent itself, so the income is easy to forecast and the property is simple to value, especially with a creditworthy tenant on a long lease. For tenants, the benefit is control over the property and a lower headline rent, but the risk is exposure to cost increases.
A jump in property tax or a major roof repair lands on the tenant's income statement, so the lease should say clearly who is responsible for what and set caps where possible. A key nuance is that the label NNN is not a legal standard.
The detail of each lease decides who pays for what, so finance teams should read the cost clauses carefully, and under modern lease accounting standards the lease may also appear as an asset and a liability on the tenant's balance sheet.
In practice
Real-world examples.
Example
A national coffee chain leases a standalone shop under a 15-year triple net lease. It pays $120,000 a year in rent plus taxes, insurance and repairs, and the landlord, a pension fund, treats the lease as a bond-like income stream.
Example
A logistics company rents a warehouse on a triple net basis and negotiates a cap on annual increases in maintenance charges. The cap means its finance team can budget the building cost within 3% each year.
Example
A private investor buys a pharmacy building let on a triple net lease at a 6.5% capitalisation rate. She collects the rent each month, and the pharmacy company handles the roof, parking lot and insurance claims.
Formula
Calculation
Tenant's annual occupancy cost = Base rent + Property taxes + Insurance + Maintenance
Property value = Net operating income / Capitalisation rate
A tenant leases a 10,000 square foot shop at $20 per square foot, so base rent is 10,000 x 20 = $200,000. It also pays property taxes of $30,000, insurance of $10,000 and maintenance of $20,000, so its total annual cost is 200,000 + 30,000 + 10,000 + 20,000 = $260,000.
The landlord receives $200,000 of rent and bears none of the three costs, so net operating income is about $200,000. At a capitalisation rate of 6.25%, the property value is 200,000 / 0.0625 = $3,200,000.Case study
Seen in the real world.
Oakhaven Retail is an illustrative, fictional chain with 12 stores. Its finance director compared a gross lease of $28 per square foot, where the landlord paid all costs, with a triple net lease of $21 per square foot on a similar unit of 5,000 square feet.
The net lease looked $7 per square foot cheaper, saving $35,000 a year on rent. However, the director added expected taxes, insurance and maintenance of $9 per square foot, or $45,000, and found the net lease cost $10,000 more overall.
The illustrative lesson is that the headline rent is the wrong number to compare. Oakhaven chose the gross lease for that site but accepted a net lease at another unit where the landlord agreed to cap annual cost increases.
Watch out
Common mistakes.
- Comparing the base rent of a net lease with the all-in rent of a gross lease, which makes the net lease look cheaper than it is.
- Assuming the three nets are always the same, when each lease may split costs differently.
- Forgetting that the tenant may carry big repair costs, such as a roof or structural work, under some net leases.
Questions
People also ask.
Who benefits most from a triple net lease?
Landlords who want stable, hands-off income benefit most, while tenants gain control and a lower base rent but accept more cost risk.
Is a triple net lease the same as an absolute net lease?
No, an absolute net lease goes further by placing structural and capital repairs on the tenant too.
Does a triple net lease appear on the tenant's balance sheet?
Under current lease accounting standards, most such leases create a right-of-use asset and a lease liability, though the details depend on the accounting framework used.
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