What is a Triple Net Lease

What is a Net Lease

It’s always better to start from the very basic level to understand the things that need higher level of understanding. Hence, let me define what exactly a net lease is! This term is constantly used in real estate, where besides the rent, a net lease asks the tenant to pay some or all property expenses, which otherwise would have been paid by the property owner. The expenses include maintenance, repairs, taxes, etc. There are actually three kinds of leases. They are:

• Single Net Lease
• Double Net Lease
• Triple Net Lease

Triple Net Lease Definition

A commercial lease agreement on the property in which the tenant or lessee has agreed to pay all real estate taxes, insurance, all the maintenance, etc. on the property, in addition to the conventional fee (e.g. rent) that are under agreement is known as triple net lease (also referred to as Net-Net-Net or NNN). In such cases, the lessee is responsible for all the expenses or cost that may be hidden or visible. In short, lessee is accountable for all the ownership expenses, leaving the owner free from such hassles.

Triple net lease is also called as ‘Triple Net’, ‘NNN’, ‘Net Lease’, and "Net-Net-Net’. All these words are used interchangeable. Normally, most of the NNN leases are between 10 to 25 years that include cost of living rent, that always increases. In many modes, income from the net lease are like payments, the lender receives from an owed loan to a homeowner. The rent continues for a full term of net lease, making credit rating of the lessee very crucial.

Benefits of Triple Net Lease

• Properties that are net leased alleviate the owner from the everyday management hassles.
• The owner gets a steady income paid by investment grade tenant.
• NNN properties are generally built for retailers who have researched the market to find middle income areas and hence, have high residual value.
• Getting a mortgage loan at favorable rates, become easier for long term lease to a tenant with credit rating.

Triple net leases have long been used for large properties because of the benefits on taxes, cash flow, etc. However, agents have started using the lease in properties rented by small tenants (low value properties). From long, the lease has been used for long term periods but, leases for 2 to 6 years are becoming popular nowadays.

Sometimes, a triple net lease may get risky for the owner, when the tenant isn’t able to pay the fees. In extreme cases, tenant may damage the building purposely to collect the insurance money. This is the main reason, why some triple net leases include a reserve fund. In this case, the tenant has to make regular payments to the reserve fund, that can be used to compensate at the time of emergency. The terms of agreements are sometimes made tougher to protect both the parties, in any emergency situations.

At any point of time, when considering lease options as a landlord or tenant, always read the full agreement before signing it. However, consulting a lawyer specializing in real estate is the safest bet.