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Triple Net Lease (NNN)

A Triple Net Lease (NNN) is a type of commercial lease agreement where the tenant is responsible for paying all operating expenses associated with the property they are renting. The term “Net Net Net” or “NNN” refers to three types of costs that the tenant agrees to pay:

  1. Net Real Estate Taxes: The tenant is responsible for their proportionate share of property taxes.
  2. Net Building Insurance: The tenant must pay their share of the insurance premiums for the building.
  3. Net Common Area Maintenance (CAM): The tenant is also responsible for the costs associated with the maintenance and repair of common areas, such as parking lots, landscaping, common hallways, etc.

In addition to these expenses, the tenant pays a base rent, which is typically lower than in a gross lease, where the landlord would cover these additional expenses.

The NNN lease thus transfers the variability and risk of these expenses from the landlord to the tenant. The tenant has an incentive to keep these costs low since they directly affect their bottom line.

Investors typically favor NNN leases for the predictable income stream, as they are less responsible for the variable costs associated with property ownership. However, it’s essential to carefully structure these leases to ensure that all possible expenses are accounted for and the responsibilities are clearly outlined.

NNN leases are most commonly used for commercial freestanding buildings and retail spaces, but they can be part of the structure for various types of real estate investments, such as office buildings and industrial properties. They are especially popular in single-tenant retail properties, such as stores, restaurants, and banks.