Definition
Triple net lease (NNN lease) is a commercial real estate lease in which the tenant pays the base rent plus three major property operating expenses: property taxes, property insurance, and maintenance costs. This shifts most financial and operational responsibilities from the landlord to the tenant, creating predictable, largely passive income for the owner.
How it works
- Tenant pays base rent to landlord.
- Tenant also pays property taxes, insurance premiums for the building, and routine maintenance/operating expenses (landscaping, parking lot upkeep, utilities tied to building operation depending on contract).
- Lease terms usually spell out which repairs or capital expenditures the tenant must cover and whether expense caps, passthroughs, or pro rata allocations apply.
Common property types
- Quick-service restaurants (QSRs) — e.g., fast-food chains and coffee shops where tenants run site upkeep.
- Convenience stores and gas stations — operators control location-related expenses while investors gain steady income.
- Standalone pharmacies — often structured as very strict NNN or absolute-net leases where tenants assume nearly all costs.
- Industrial buildings and single-tenant distribution centers — frequently build-to-suit with tenants covering routine operating costs.
- Medical and healthcare facilities — tenants maintain specialized systems and site operations.
Variations
- Standard NNN: Tenant pays taxes, insurance, and maintenance but landlord may retain responsibility for major capital replacements or structural repairs unless the lease specifies otherwise.
- Absolute net lease: A stricter subtype where the tenant covers every expense, including structural repairs and capital items, even after catastrophic events.
- Modified NNN: Leases that add caps on passthrough costs, carve out certain landlord responsibilities, or split specific capital expenditures.
Typical lease length
Triple net leases are often long-term agreements, commonly 10 years or more, providing landlords stable, predictable cash flow and tenants long-term control of the location.
Pros and cons
- For landlords: Pros — lower management burden, predictable net income, easier to finance and value. Cons — less control over property condition and potential for disputes over expense allocations.
- For tenants: Pros — control over site costs and operations, often favorable for single-use businesses. Cons — higher financial responsibility and exposure to variable operating costs.
When to consider a triple net lease
- Landlords seeking passive, low-management investments and stable long-term income.
- Corporate tenants or national chains that want operational control of a site and can absorb variable property expenses.
- Investors prioritizing predictable cash flow and lower day-to-day involvement in property management.
Quick checklist before signing
- Clarify which specific costs are tenant vs. landlord responsibilities (taxes, insurance, maintenance, structural repairs).
- Check for caps or passthrough provisions on operating expenses.
- Review lease length, renewal options, and escalation clauses for taxes/insurance/operating costs.
- Assess who is responsible for major capital items (roof, HVAC, foundation) and catastrophic damage.
- Consider creditworthiness and business stability of the tenant if you are an investor.
Bottom line
A triple net (NNN) lease shifts most property-related expenses to the tenant—taxes, insurance, and maintenance—making it a common structure for single-tenant commercial properties where tenants want control and landlords want passive, predictable income. Variations exist, so carefully review lease language to understand the precise division of financial and repair responsibilities.
