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What is a Triple Net Lease?
Mary McMahon
Mary McMahon
A triple net lease is a type of commercial leasing agreement in which the lessee pays taxes, insurance, and maintenance in addition to the rent. There are advantages and disadvantages to this type of lease for both parties, and individuals who are considering one should research the situation carefully before making a decision. The length of a lease can vary, but many last for at least 50 years.
There are many different commercial leasing options. In a gross lease, the lessee pays rent while the landlord takes care of everything else. Most people who rent their homes are familiar with this type of lease, as it is commonly used for residential properties. In a double net lease, the landlord assumes some of the costs of property upkeep. Landlords commonly cover parking, heating and cooling systems, and the structural integrity of the building.
The triple net lease is sometimes called a true net lease, because the landlord usually has no responsibilities related to building upkeep. For this reason, many commercial landlords favor this option. The building can generate a high level of income while the tenant keeps it in good condition, generally making improvements as well. The tenant has many of the advantages of ownership, including control over the property, without the substantial capital investment that a new acquisition represents.
This type of lease can be risky for a landlord, however, since some tenants may not be able to pay fees, or may allow the building to fall into disrepair. In extreme cases, a tenant may deliberately damage a building to collect insurance money. For this reason, some leases include a reserve fund into which the tenant makes regular payments that can be used to cover essential repairs in the event of emergency.
A triple net lease is individualized to the tenant and lessor, and the terms of the contract may contain restrictions and stipulations to protect both parties. In some instances, for example, the terms of the lease may include a cap on total property taxes to be paid by the tenant. If the property taxes rise above a certain amount, the landlord will be responsible for covering the remainder. Protections may also be built in to cope with rising insurance rates or unexpected maintenance costs.
When considering lease options as a landlord or tenant, the full terms of the lease should always be read before committing. In the case of a triple net lease, both parties should make sure that all the terms are clear and agreed upon. Experts often recommend that both parties consult a lawyer who specializes in real estate before signing any agreement.
Mary McMahon
Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a WiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.
Learn more...
Mary McMahon
Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a WiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.
Learn more...AS FEATURED ON:
AS FEATURED ON:
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![When renting a home with a triple net lease, the landlord is not responsible for upkeep.]()
By: Monkey BusinessWhen renting a home with a triple net lease, the landlord is not responsible for upkeep. -
![A lease agreement.]()
By: eccoloA lease agreement.
Discussion Comments
In Oregon under a triple-net lease, if the lessee replaces a worn out heat pump, can they remove it when they move?
I am in a NNN. The air conditioning went out and I was forced to pay $40,000 for new units. It baffles me as to how I can put in $40,000 and if I leave, I will see no return on my money, and the building owner gets the new equipment. How is the NNN fair for tenants?
I know the renter pays the real estate tax but does it create a taxable obligation to the landlord? in other words, is the real estate tax obligation still legally the landlord's and the payment of it a taxable to the landlord as a discharge of a legal obligation?
This site was very informative. I had initially read about triple net leases on a few other sites and was still a little uncertain of what exactly it was until I got to this site. Thank you.
The explanations were simple clear and useful. I really appreciated the site. Perhaps a gross and nnn lease calculator should be attached.
I am in full agreement with anon7556 above - exactly my sentiments. Thanks.
We are the lessors and we have a triple net lease. We have had considerable hail damage. However, the lessee has contacted us about problems with the roof. Is it not his responsibility to contact his insurance company to have them look at the roof?
Question. I have a nnn lease, and my front and back awnings which were put up by the first landlord are in tatters and the current landlord does not want to replace them, nowhere in my contract does it say I have to.
What is the reality? it is in a shopping center
In triple net lease, since the lessee pays for the property taxes, can the lessee write off in his taxes the amount he paid?
for anon14649:
By law you are protected in that during the sale of your property the new owner also assumes all previous leases and must maintain them. Now he may choose to not honor an option period but that sounds different from your post. If I were you I would consult your attorney or a lease specialist in your area. If you haven't already done so do not sign any new leases or anything with the new owner in regards to that matter!
What I understand is, that is convenient when the tenant is also giving you a name that can almost warranty the making of money. but in my case, i am opening a little tote the note car dealership, and the place I rented was sold to a different guy after I rented it, and he wants me to sign another contract which is nnn, I am starting from zero, I can't afford to pay either taxes on the place nor insurance. I think I am backed up by the current contract I signed with the first owner. but what arguments can I USE to maybe convince him to let me stay under a nn contract or gross.
ps. this guy is also talking about keeping 2% of my gross sales if I make over certain amount of money.
Question. I am currently in a triple net lease for my office. Recently, a generator had to be replaced in the amount of $20,000. The generator helps to run the sewage pump. If the power goes out, the generator "kicks" on and pumps the sewage from our shopping center. The landord applied this to our CAM charges. We argued that it is a replacement cost, he argues he is maintaining the sewage system. Should this replacement of a generator fall to the hands of the tenant or should the landord play for this as per a triple net lease?
This is a very informative article. It is well presented and very reader-friendly. It provided just the information i wanted!
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