What does NNN mean? What is a Triple Net Lease?
It’s common to see this in commercial real estate listings or advertisements. Triple Net Lease, or NNN, is one in which the tenant is responsible for all of the expenses that come with the commercial real estate, in addition to the monthly rent. Those extra expenses are usually: property tax, property insurance, and maintenance or common area expenses. These are the most common but with a NNN lease all expenses related to the property are generally covered by the Tenant. A triple net lease is different than a gross lease or modified lease, in which some or all expenses are paid by the Landlord and included in the rent. Triple Net is generally considered to be lower risk for the landlord because all of the costs are paid for by the tenant. Sometimes the market rent may be lower to offset this cost on the tenant. However, for businesses like restaurant and retail, triple net is the norm in most prime locations. Triple net leases are often leased to just one single tenant in an entire building. But, a triple net lease can also have more than one tenant or have multiple tenants in a large building or center. A common variation is where all tenants in a location, like a strip mall, would all have separate leases, however, they each pay a pro rata share of the triple net expenses or a CAM fee (common area maintenance fee) on the entire property. This fee covers the cost of all the property expenses and is divided among all the tenants.
Other types of commercial leases:
Full service – is a type of lease where the landlord pays for all of the building expenses and the tenant simply pays a monthly rent. Sometimes this can include janitorial and cleaning services and sometimes it can also include all of the utilities as well. This type of lease is common in multi-tenant office buildings or properties that cater to small businesses. These leases do generally have clauses that allow the landlord to charge for any increases in the building expenses. For example, if the heat costs are higher than average one year, the lease allows the landlord to pass on the extra cost to the tenants.
Modified Gross – is like a full service lease except some expenses are excluded like Utilities or Taxes and paid for directly by the tenant.
Percentage Lease – is where the tenant pays the base rent AND a percentage of revenue or sales from the business. This type of lease is most common in retail settings like a mall.