noun · /trɪpəl nɛt liːs/
NNN Lease
Also known as: Triple Net Lease, Net Net Net, NNN
Definition
A NNN lease (triple net lease) is a commercial lease structure where the tenant pays base rent plus all three major operating expenses: property taxes, insurance, and maintenance/CAM. The "three nets" pass operating cost variability to the tenant, giving landlords predictable, passive income. NNN leases are common in retail (especially single-tenant properties) and industrial real estate.
Property Taxes
Real estate taxes assessed by local government
Insurance
Property insurance premiums
Maintenance/CAM
Common area maintenance and repairs
NNN vs. Other Lease Types
| Expense | Gross Lease | Modified Gross | NNN Lease | Absolute NNN |
|---|---|---|---|---|
| Base Rent | Tenant | Tenant | Tenant | Tenant |
| Property Taxes | Landlord | Shared* | Tenant | Tenant |
| Insurance | Landlord | Shared* | Tenant | Tenant |
| CAM / Maintenance | Landlord | Shared* | Tenant | Tenant |
| Roof & Structure | Landlord | Landlord | Landlord** | Tenant |
| Utilities | Landlord | Tenant | Tenant | Tenant |
* Modified gross typically uses a "base year" where landlord covers year-one expenses and tenant pays increases. ** Standard NNN leases often have landlord retain roof/structure; varies by negotiation.
How NNN Rent Works: Example
A 5,000 SF retail space with a NNN lease at $24/SF base rent:
Annual Base Rent
$120,000
5,000 SF × $24/SF = $120,000/year
NNN Expenses (Est.)
- Property Taxes$4.50/SF
- Insurance$0.75/SF
- CAM$2.25/SF
- Total NNN$7.50/SF
Base Rent
$24.00/SF
+ NNN Expenses
$7.50/SF
Total Occupancy Cost
$31.50/SF
$157,500/year
The landlord receives $120,000 in base rent. The $37,500 in NNN charges flow through to pay actual expenses. If expenses increase, the tenant's NNN portion increases—the landlord's income remains stable.
NNN Lease: Pros and Cons
For Landlords
Pros
- • Predictable, stable income stream
- • No exposure to operating expense increases
- • Minimal management responsibilities
- • Attractive to passive investors
- • Often long-term leases (10-25 years)
Cons
- • Lower base rent than gross leases
- • Tenant credit risk if they default
- • Less control over property maintenance
- • May still have roof/structure responsibility
For Tenants
Pros
- • Lower base rent starting point
- • Control over property maintenance
- • Transparency into actual costs
- • Potential to reduce expenses through efficiency
- • Long lease terms provide stability
Cons
- • Unpredictable total occupancy costs
- • Exposure to tax and insurance increases
- • Responsible for repairs and maintenance
- • Administrative burden of paying expenses
Where NNN Leases Are Common
Single-Tenant Retail (STNL)
Drugstores (CVS, Walgreens), fast food (McDonald's, Chick-fil-A), dollar stores, and auto parts stores typically sign 10-20 year absolute NNN leases.
Popular with passive investors seeking "mailbox money"
Industrial & Logistics
Warehouses and distribution centers often use NNN structures, though CAM is minimal compared to retail.
Tenants prefer control over their specialized operations
Medical Office
Medical tenants (dialysis, urgent care, dental) often sign NNN leases with healthcare REITs or private investors.
Specialized build-outs make long-term leases common
Auto Dealerships & Service
Auto dealerships, tire shops, and quick-service auto (Jiffy Lube, Valvoline) commonly use NNN leases.
Often absolute NNN with tenant responsible for everything
Key Terms to Negotiate in NNN Leases
Roof & Structure Responsibility
Clarify who handles capital repairs. In standard NNN, landlords often retain roof/structure. Absolute NNN passes everything to tenant.
CAM Caps
Tenants may negotiate annual caps on CAM increases (e.g., "CAM shall not increase more than 3% per year"). Protects against runaway expense growth.
Tax Protest Rights
Since tenants pay property taxes, they may want the right to protest assessments or require landlord cooperation in appeals.
Audit Rights
Tenants should have the right to audit CAM reconciliations to verify charges are accurate and in accordance with the lease.
Excluded Expenses
Define what cannot be passed through: capital improvements, landlord's income taxes, management fees above market rate, legal fees for other tenants, etc.
Analyzing a Property with NNN Leases?
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