A net lease is a lease agreement where the tenant is responsible for paying not only the rent but also some or all of the property’s operating expenses. These expenses may include property taxes, insurance, maintenance, utilities, and other related costs. The net lease is typically used in commercial real estate.
There are several variations of net leases, including:
- Single Net Lease (N Lease): The tenant pays the rent and the property taxes. The landlord pays all other operating expenses.
- Double Net Lease (NN Lease): The tenant pays the rent, property taxes, and insurance. The landlord pays maintenance and other operating expenses.
- Triple Net Lease (NNN Lease): The tenant pays the rent, property taxes, insurance, and maintenance. The landlord is typically only responsible for structural repairs. This is the most common type of net lease, especially in commercial real estate investment.
- Absolute Net Lease: In this type of lease, the tenant takes on all the responsibilities, including both operating expenses and structural repairs. It is the most comprehensive form of a net lease.
Net leases are often favored by landlords as they reduce their financial responsibilities for the property. Conversely, tenants need to be aware of all the additional costs and ensure that they are accounted for in the lease agreement. Net leases are often used in long-term lease agreements with commercial tenants, such as retail businesses or office spaces, as they provide a more predictable cost structure for both parties.