What is a Triple Net Lease?

Published by: Rick Melero, Commercial Investor, Real Estate Mentor, Member of HIS Board of Advisor on 16th May 2010 | View all blogs by Rick Melero, Commercial Investor, Real Estate Mentor, Member of HIS Board of Advisor

The Triple Net Lease (abbrevieated NNN in advertising) is used extensively in commercial real estate. It is popular for multi-tenant and single-tenant industrial and retail properties.

The three elements -- the 'triple' -- are Taxes, Insurance, and Operating Expenses. In a true NNN lease (and many so-called NNN leases are not 'true' NNN), the tenant pays a basic rent to the landlord, and pays in addition ALL the operating costs of the property: the Real Estate Taxes, all the Insurance premiums, and all the operating expenses -- from utilities to maintenance contracts, pest control to security -- everything. In a single-tenant building many if not all of these costs will be directly paid by the Tenant, and even the tax bill will be invoiced to the Tenant, whereas in a multi-tenant building it is more usual for the landlord to be invoiced for at least some of the operating expenses (taxes and insurance at least) which will be collected, often monthly, from each tenant according to its pro-rated share. This separate collection is often called 'CAM', for Common Area Maintenance (tho it may include non-maintenance items like insurance and RE taxes).

A 'Gross' lease, sometimes identified as a 'Full Service Lease', in its pure form has the Tenant paying a single flat sum each period to the Landlord as the total rent, with the Landlord responsible for all costs of operation of the property. A one-night stay at a hotel is such a lease, as are some short apartment leases. More often, Gross leases should be called 'Modified Gross', because under their terms a Tenant will be required to pay some of the operating costs (electricity, water, cleaning, perhaps), and/or the rent each year may increase by the amount that the operating costs -- or the Tenant's share of them -- have increased in the previous year.

Rick Melero
www.RealDealCommunity.com
www.RealDealOrlando.com