A Triple Net Lease (also known as NNN Lease) is one of the most popular leases in commercial real estate, where landlords are looking for a steady and predictable cash flow. A Triple Net Lease is a form of real estate lease agreement where the tenant or lessee is responsible for all the ongoing expenses for that property in addition to paying the rent for the property. The tenant being responsible for all the expenses associated with the maintenance of the property takes all the unknown risks associated with the investment on the property. Triple Net Lease is also referred to as NNN Lease or Triple-N or simply written NNN.
There are three types of Net leases in the commercial real estate industry:
Single Net Lease
In a Single Net Lease (also referred to as Net or N), the tenant is responsible for paying the property taxes.
Double Net Lease
In a Double Net Lease (Net-Net or NN), the tenant is responsible for both property taxes and the cost to insure the building.
Triple Net Lease
In a Triple Net Lease (Triple-Net or NNN), the tenant is responsible for property taxes, building insurance and all the maintenance costs associated with the property. The fact that it covers all 3 types of expenses makes it Triple Net. The tenant pays all these types of expenses in addition to the basic rent and utilities for the building.
Triple Net Leases tend to have a lower rent because the tenant assumes all the ongoing expenses for the property. In general, triple net leases are most often used for freestanding commercial buildings and typically with a single tenant even though it could be used in other situations also. It is common for NNN Leases to have an initial term of 10 years or more with annual rent increases that are pre-determined.
Benefits to Landlords and Tenants
Landlords like NNN Leases because it provides a steady and predictable income stream. Maintenance costs are the most unpredictable expenses for landlords. By eliminating the risk associated with paying for unpredictable repair costs, the landlord will be able to forecast their profits for the entire term of the lease. Since it is typical for NNN leases to be signed for long terms and have rent increases built in, landlords don't have to worry as much about lease renewals or negotiating rent and Tenant Improvement (TI) expenses often.
For the tenants, because the expenses associated with the property are passed on to them, NNN leases generally have a lower rental rate than a standard lease (also called a gross lease).
For investors who don't want to buy NNN properties directly, there are other ways to invest in them. Investors can buy public equities that specialize in NNN leases. Some of the popular stocks in this space are: NNN (National Retail Properties), WPC (W.P. Carey Inc) and O (Realty Income).