Legal Definitions - triple net lease

A triple net lease, often abbreviated as NNN, is a specific type of commercial real estate lease agreement where the tenant (also known as the lessee) takes on significant financial responsibility beyond just paying the base rent.

In a triple net lease, the tenant is obligated to pay not only the monthly rent but also three major categories of property expenses, which are the "three nets":

• Property Taxes: The taxes levied by local government authorities on the real estate.
• Building Insurance: The premiums for insuring the property against damage, liability, and other risks.
• Maintenance Costs: All expenses related to the upkeep, repairs, and general maintenance of the property, both inside and out.

This arrangement means the landlord (or lessor) has fewer financial and managerial obligations related to the property's day-to-day operation and long-term upkeep. For tenants, while they assume more responsibility and risk for potential cost fluctuations, triple net leases often come with a lower base rent and greater autonomy to manage and customize the leased space.

Here are some examples to illustrate how a triple net lease works:

• Example 1: Standalone Restaurant Building

  A popular fast-casual restaurant chain decides to open a new location in a suburban area. They enter into a 10-year triple net lease for a standalone building with a drive-thru. In addition to their agreed-upon monthly rent, the restaurant chain is responsible for paying the annual property taxes assessed by the city, maintaining comprehensive insurance coverage for the building structure, and handling all maintenance, which includes everything from repairing the roof and plumbing to landscaping the exterior and repaving the parking lot. This arrangement allows the property owner to receive a predictable rent payment without the burden of managing these operational costs.

• Example 2: Large Industrial Warehouse

  A growing e-commerce fulfillment company needs a substantial warehouse space to manage its inventory and shipping operations. They secure a 15-year NNN lease for a 200,000 square-foot industrial facility. Beyond the base rent, the fulfillment company is contractually obligated to pay the property taxes to the county, ensure the building is fully insured against fire and other perils, and cover all maintenance expenses, such as repairing loading docks, maintaining the HVAC systems, and addressing any structural repairs. This long-term commitment and financial responsibility give the tenant significant control over the property's condition and operational efficiency.

• Example 3: Retail Pharmacy in a Strip Mall

  A national pharmacy chain leases a prominent end-cap unit in a newly developed strip mall. Their lease agreement is structured as a triple net lease. This means that in addition to their base rent, the pharmacy pays its proportionate share of the strip mall's overall property taxes, a portion of the building's master insurance policy, and contributes to common area maintenance (CAM) charges. These CAM charges cover shared expenses like parking lot upkeep, exterior lighting, and landscaping for the entire strip mall, effectively covering the "maintenance" component of the triple net lease for a multi-tenant property.