Triple Net Lease
A triple net lease (NNN) is a lease structure in which the tenant is responsible for paying all three major operating expense categories -- property taxes, insurance, and maintenance -- in addition to base rent. This shifts the majority of operating risk from the landlord to the tenant.
Triple net leases are one of the most common lease structures in commercial real estate, particularly for single-tenant retail, industrial, and medical office properties. Under a NNN lease, the landlord receives a predictable stream of base rent with minimal management responsibility, while the tenant assumes the variable costs of occupancy. This makes NNN-leased properties especially attractive to passive investors seeking bond-like income streams.
The quality of a NNN investment depends heavily on the creditworthiness of the tenant, the remaining lease term, and the rental escalation structure. A Walgreens or Dollar General on a 15-year NNN lease with 2% annual bumps represents a very different risk profile than a local restaurant on a 5-year NNN lease with flat rent. Investment-grade tenants command lower cap rates (often 4.5-5.5%) because the income stream is considered highly reliable, similar to a corporate bond.
It is worth noting that not all NNN leases are truly "absolute" triple net. Many have landlord responsibilities for structural components like the roof and foundation, or include caps on certain expense reimbursements. Investors should carefully review lease abstracts to understand the actual allocation of expenses. "Absolute NNN" or "bondable NNN" leases transfer all responsibility to the tenant, including structural maintenance, and are the most passive form of real estate ownership.
Related Terms
Gross Lease
A gross lease (also called a full-service lease) is a lease structure in which the landlord pays all or most property operating expenses -- including taxes, insurance, maintenance, and utilities -- and the tenant pays a single, all-inclusive rent amount.
Modified Gross Lease
A modified gross lease is a hybrid lease structure that splits operating expense responsibilities between the landlord and tenant, with the specific allocation varying by negotiation. It falls between a full gross lease and a triple net lease.
CAM Charges
Common area maintenance (CAM) charges are fees paid by tenants to cover the cost of maintaining shared spaces in a commercial property, such as parking lots, lobbies, landscaping, and common restrooms. CAM is typically allocated proportionally based on each tenant's share of the total leasable area.
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