What is a triple net lease?

A triple net lease (NNN) is a commercial lease in which the tenant pays base rent plus the property's three main operating costs: property taxes, building insurance and common area maintenance (CAM). The landlord receives rent largely free of those expenses. NNN leases are most common in single-tenant retail, restaurant and industrial buildings, where one tenant occupies and runs the entire property.

The word "net" refers to what the landlord keeps after expenses. In a gross lease, the landlord pays operating costs out of the rent it collects. Each "net" added to a lease moves one more cost category to the tenant, and a triple net lease moves all three.

NNN leases also tend to share a few other traits. Terms are long, often 10 to 25 years for single-tenant buildings with national tenants. Rent usually rises on a fixed schedule, either a set percentage each year or a larger step every five years. Tenants typically get one or more renewal options at the end of the initial term.

What does the tenant pay and what does the landlord pay?

In a standard triple net lease, the tenant pays base rent, property taxes, the building insurance premium and the cost of routine maintenance and repairs. The landlord usually stays responsible for the roof, the structure and major capital items such as replacing the parking lot, unless the lease says otherwise. The lease document decides the split, not the NNN label.

Tenants pay these costs in one of two ways. Some pay the tax authority, insurer and vendors directly. Others pay the landlord a monthly estimate on top of base rent, and the landlord reconciles that estimate against actual costs once a year.

This split is what makes the lease type useful to anyone researching a property. It tells an investor or lender how much of the rent becomes net operating income, and it tells a roofing, HVAC or facilities contractor whether the owner or the tenant is the one who pays for the job.

Triple net lease example: what does $20/sf NNN mean?

A quote of $20 per square foot NNN means the tenant pays $20 per square foot per year in base rent, with its share of taxes, insurance and CAM charged separately. Those NNN charges change each year with the property's actual costs, so the total cost of occupying the space is always higher than the quoted rate.

Here is how that works on a 5,000 square foot retail unit quoted at $20/sf NNN, with estimated NNN charges of $6 per square foot. These figures are for illustration only.

The same space could be offered on a gross lease at about $26 per square foot and cost the tenant roughly the same in year one. The difference is who carries the risk. Under the gross lease, the landlord absorbs any jump in taxes or insurance. Under the NNN lease, the tenant does.

For an investor or lender, the $100,000 of base rent in this example is close to the property's net operating income, because the tenant covers the $30,000 of operating costs. That is why NNN income is simpler to underwrite than income from a building where the owner pays expenses.

How does a triple net lease compare to other lease types?

Commercial leases differ by how many operating costs the tenant pays on top of rent. A gross lease bundles everything into rent. A single net lease adds property taxes, a double net lease adds taxes and insurance, and a triple net lease adds taxes, insurance and maintenance. A modified gross lease splits costs between landlord and tenant on negotiated terms.

Multi-tenant office buildings lean toward gross and modified gross leases, because the landlord runs shared systems for the whole building. Single-tenant retail and industrial buildings lean toward NNN, because the tenant already controls the space and its upkeep. When you research a property, its use and tenant count are often the first clue to which lease type sits behind it.

What is an absolute triple net lease?

An absolute triple net lease, also called a bondable lease, puts every property cost on the tenant, including the roof, structure and capital replacements, and often rebuilding after a fire or other casualty. The landlord collects rent with almost no operating responsibility. These leases are usually signed by large national tenants on long terms.

Because the landlord's income behaves much like a bond coupon backed by the tenant's credit, absolute NNN properties leased to strong tenants tend to sell at lower cap rates than standard NNN deals. Buyers accept a lower yield in exchange for fewer surprises.

Which commercial properties use triple net leases?

Triple net leases are most common where a single tenant occupies an entire building. Typical examples include drugstores, quick-service and casual dining restaurants, dollar stores, auto parts stores, bank branches, convenience stores, freestanding medical offices and single-tenant warehouses.

Multi-tenant shopping centers and industrial parks use NNN structures too. In those properties, each tenant pays a pro rata share of shared costs, usually calculated as the tenant's square footage divided by the building's total leasable square footage. A tenant occupying 2,500 square feet of a 25,000 square foot center would pay 10% of the center's taxes, insurance and CAM.

What a triple net lease means for brokers, investors, lenders and service providers

A triple net lease affects each part of the commercial real estate market differently. It shapes what a broker can sell, what an investor is buying, how a lender sizes a loan and who a contractor needs to reach. In every case, the lease type points you to the questions to ask and the person to contact.

Commercial real estate brokers

Many single-tenant NNN properties trade between private owners who hold one or two assets in an LLC. Brokers who can identify those owners, see how long they have held the property and spot an approaching loan maturity can approach them before a property is listed. Remaining lease term is the other trigger: owners often sell while a lease still has enough years left to attract buyers.

Investors and 1031 exchange buyers

Investors buy NNN properties for income that needs little management. The work happens before closing: confirming the tenant, the remaining term and the rent schedule from the lease, then checking ownership, debt and sale history from property records. Buyers in a 1031 exchange face tight deadlines, so having that research ready shortens the path from identification to closing.

Roofing, HVAC, solar and other commercial service providers

The lease type tells a contractor who signs off on the work. In a standard NNN lease, the property owner usually pays for the roof, the structure and major replacements, so a roofing contractor should reach the owner, not the store manager. Routine maintenance and HVAC repair usually fall to the tenant, often through a corporate facilities team. Solar projects tend to need the owner's approval because they involve the roof and long-term agreements. Reonomy's tools for commercial service providers are built around finding that decision-maker.

What to check before buying an NNN property

• Tenant credit. A lease is only as strong as the company guaranteeing it. Check whether the lease is guaranteed by the corporate parent or by a single franchisee or subsidiary.

• Remaining term. A property with 15 years left on its lease is a different asset than the same building with two years left. Short remaining terms raise re-leasing risk and usually push cap rates up.

• Rent escalations. Flat rent for 10 years loses value in real terms. Annual increases or regular step-ups protect income against inflation.

• The real estate itself. If the tenant leaves, the building has to work for someone else. Location, visibility, access and how easily the space can be re-tenanted all matter.

Triple net leases and 1031 exchanges

NNN properties are a frequent target for 1031 exchanges. Section 1031 of the Internal Revenue Code lets investors defer capital gains tax when they sell investment real estate and reinvest the proceeds in like-kind property, provided they identify replacement property within 45 days and close within 180 days. The light management load of an NNN property suits investors trading out of apartments or multi-tenant buildings that demand more hands-on work.

How to evaluate a triple net property with property data

Evaluating an NNN property means checking the facts an offering memorandum does not prove: who actually owns the building, what debt sits on it, what it sold for before and which business is operating at the address. Commercial property data answers those questions whether you are underwriting a purchase, preparing a listing, sizing a loan or qualifying a service lead.

Lease terms themselves come from the lease and the offering memorandum. Property records work alongside that review rather than replacing it, and they cover the parts of the picture a seller has little reason to volunteer.

Confirm who owns the property

Most NNN properties are held in single-purpose LLCs, so the name on the deed tells you very little. Tracing the LLC to its members or managing parties shows who you are actually dealing with. Reonomy's guide to finding commercial property owners covers how to do this from public records. It is also worth pulling the owner's full property portfolio, since NNN investors often hold several similar assets and may be open to selling more than one.

Check the debt on the property

Recorded mortgages show the lender, the original loan amount, the recording date and often the maturity date. A loan maturing in the next 12 to 24 months can push an owner toward a sale or refinance, which matters whether you are buying, lending or prospecting. If the loan was securitized, CMBS servicer data can also show delinquency and watchlist status. Reonomy's overview of commercial mortgage data explains what each record contains.

Review the sale history

Prior deeds show what the property sold for, when, and between which parties. A building that changed hands twice in five years at rising prices tells a different story than one held by the same owner for 20 years. A full property history also surfaces refinances, which show how much equity the current owner has pulled out.

Watch the property tax trend

Under an NNN lease, the tenant pays the property taxes, so a large reassessment raises the tenant's occupancy cost rather than the landlord's. That still matters to an investor, because a sharp jump can strain a weaker tenant. Tax records show assessed value and how the tax bill has changed from year to year.

Verify the occupant

Occupant data confirms which business is operating at the address. If the tenant named in the offering memorandum differs from the business on site, find out why before going further. It could be a sublease, a franchise arrangement or a brand change, and each affects who stands behind the rent.

Reonomy brings these records together for more than 54 million U.S. commercial properties, linking ownership, debt, sales, tax and occupant data to each address and rolling LLCs up to the people behind them.

How to find NNN property owners

To find NNN property owners, search for single-tenant commercial buildings by property use and location, then trace each property's owner of record, usually an LLC, to the person or firm that controls it. Brokers use this to source off-market NNN deals, lenders use it to reach owners with maturing loans, and roofing and solar contractors use it to reach the owner who approves building work.

Start by filtering for the uses where NNN leases are common, such as fast food restaurants, drugstores, bank branches and auto parts stores, within the markets you cover. Narrow the list with signals that suggest an owner may be ready to act, such as a long holding period, a loan maturing soon or a recent tax increase. Then resolve each owning entity and review the owner's other holdings. Reonomy's guide to off-market properties walks through this process in more detail.

Know the property and its owner before you make a move

A triple net lease looks simple on a rent quote, but the opportunity depends on the tenant, the remaining term and the facts behind the building. Whether you are buying, listing, lending or selling services, checking ownership, debt and sale history first tells you what you are dealing with and who to call.

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