What is a Triple Net Lease in Commercial Real Estate?
As you’re getting to the final steps of settling on a commercial property, you may face a lengthy, confusing lease. Before signing any documents, it’s important to know what the common leases in commercial real estate are, what they entail, and what that means for you as a tenant. One type of lease that is frequently used in commercial real estate is the Triple Net Lease, or NNN. Here we will go through what triple net leases are, what they include, and what they mean in a commercial lease.
What does Triple Net mean in a commercial lease?
A Triple Net Lease is a type of lease arrangement in commercial real estate where the tenant is responsible for three of the main operating costs for the property. Of all the types of commercial real estate leases, the triple net is considered an absolute gross lease, meaning the tenant pays for a considerable portion of the costs associated with the property. However, that doesn’t necessarily mean all the costs and each contract can differ depending on the situation.
What does a Triple Net Lease include?
There are three distinct costs that the tenant is responsible for in a Triple Net Lease which are represented by the three Ns: the Net property taxes, Net insurance, and Net maintenance costs. Let’s go through each cost one by one.
- Net Property Taxes: One way the tenant is responsible for paying the property taxes in a Triple Net lease is that the tenant pays directly to the local government. In other cases, the owner of the property will calculate the tax of the property then passes the cost along to the property owner. These taxes contribute to the overall cost of managing the property.
- Net Building Insurance: The tenant must pay for insurance coverage for the property you’re leasing. Many times the property owner will obtain the insurance plan, while other times the tenant will be responsible for acquiring the insurance, depending on the situation. These insurance packages often include property insurance and liability insurance, but more specific details regarding what insurance the tenant is required to carry should be stated in the lease.
- Net Common Area Maintenance (CAM): The tenant is in charge of most of the costs associated with maintaining and repairing the property in the common areas, which includes the parking lot, landscaping, or other routine maintenance to keep things shipshape. Similar to insurance and taxes the owner might handle the maintenance and pass the cost over to the tenant. This can depend on the lease and is the most likely scenario where a tenant could pay for maintenance directly
It’s important to note that the property owner may handle the details of the insurance, taxes and maintenance and pass the cost over to the tenant, depending on the lease. Each lease should clearly specify what responsibilities the property owners hold and what responsibilities and costs are expected from the tenant. To learn more about what to expect from your commercial real estate agent, visit our page about the difference between a commercial real estate agent vs. a residential real estate agent.
What does a Triple Net Lease signify for the tenant?
In an NNN Lease, the triple net base rent is typically lower compared to other lease agreements since the tenant is responsible for these additional costs associated with the property. The tenant also assumes more control over the property, which can come in handy if you need immediate repairs and it is inconvenient to wait for external maintenance provided by the property owner. It’s just one step less in communicating your needs and preferences to the property owner.
Parting Thoughts
While it’s important to thoroughly read the lease for your specific property as every contract can vary, this overview informs what a triple net lease generally entails. Before moving forward, make sure the lease is clear about your responsibility of handling these three costs and your financial obligations. Triple Net leases are highly common in commercial real estate as it gives the tenant more control over their leased property and they can decide for themselves what is best suited for their business.