WHAT IS A TRIPLE NET LEASE?
The third commercial lease type is Triple Net, where the tenant pays the base rent and in addition three primary operating expense categories, hence the “NNN” definition. These categories include 1) CAM (Common Area Maintenance charge), to cover the landlord’s property management, waste, water, landscaping and general maintenance, 2) property taxes, and 3) building insurance.
In addition to the base rent and NNN charges, the tenant also pays their own utility charges for the subject premises, contracted direct with the service provider. Landlords typically estimate expenses and charge tenants a portion of these expenses based on their proportionate, or pro-rata share.
Triple net leases are generally the most landlord-friendly commercial lease type, and tenants should always scrutinize NNN charges and negotiate limits on the amounts they can be increased annually. NNN charges can fluctuate monthly as operating expenses increase or decrease, making it harder for a business to forecast and budget their occupancy costs.
Triple net leases are most suitable for industrial and retail multi-tenant properties where each individual tenant’s operating expenses can vary greatly, and can’t be managed under a gross lease structure. Operating expense cost savings are passed on to the tenant rather to the landlord.