A Triple Net Commercial Lease Agreement (or NNN Lease) is a lease agreement between a tenant and a landlord where the tenant is responsible for all taxes, insurance and maintenance costs associated with the property. This type of lease agreement is commonly used in retail and office space leases. The tenant must pay a base rent plus the taxes, insurance and maintenance costs. The landlord is responsible for the upkeep of the building, but the tenant is responsible for all other costs. There are two main types of Triple Net Commercial Lease Agreements: Gross Lease and Modified Gross Lease. In a Gross Lease, the tenant pays a flat rate for the space, and the landlord pays all expenses associated with the property. In a Modified Gross Lease, the tenant pays a base rent plus a portion of the operating expenses.
Triple Net Commercial Lease Agreement
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FAQ
The main disadvantage of a triple net lease in commercial real estate is the higher monthly costs as opposed to those in double or single net lease structures. Furthermore, since tenants become responsible for taxes, this puts them on the hook for any tax-related liabilities such as fines and penalties.
Triple net lease (NNN) is normally a commercial lease where the lessee pays rent and utilities as well as three other types of property expenses: insurance, maintenance, and taxes.
With a triple net lease (NNN), the tenant agrees to pay the property expenses such as real estate taxes, building insurance, and maintenance in addition to rent and utilities.
Long-Term Occupancy Most triple net lease agreements are structured to offer long-term tenant occupancy (upwards of 20 years). This is advantageous for landlords because it removes the risk and losses of a property sitting vacant between tenants.
The most obvious benefit of using a triple net lease for a tenant is a lower price point for the base lease. Since the tenant is absorbing at least some of the taxes, insurance, and maintenance expenses, a triple net lease features a lower monthly rent than a gross lease agreement.
NNN Advantages Unlike the stock market and high-maintenance real estate, a NNN lease investment is a valuable, tangible asset that offers the security of monthly income backed by a lease, steady cash flow, and very few or no responsibilities for lifestyle freedom.
NNN leases afford lower risk than standard commercial leases. NNN leases are most commonly used for buildings with significant cash flow, such as office buildings and restaurant chains. Similarly, a shopping mall might be paying rent through an NNN lease to the property owner.
Because the tenant is responsible for nearly all the costs associated with the property?from property taxes and insurance to regular upkeep costs?a triple net lease agreement is a fairly low-risk investment for an investor.