In a hurry:

 

Apply it today:

• NNN = property taxes + property insurance + common area maintenance

• NNN leases require the tenant to either pay for these expenses directly or reimburse the owner for the expense

 

By the end of this episode you’ll learn:

• What is a triple net lease?

• What does “NNN” refer to?

• What is a passthrough or reimbursable expense?

• Why would an owner or tenant agree to a NNN lease?

• In which property types is a NNN lease most common?

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Have a few minutes:

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There are many types of commercial real estate leases. One of the most popular is the triple net lease. A triple net (NNN) lease shifts the responsibility of payment (or reimbursement) of operating expenses onto the tenant. In other words, in a NNN lease, the tenant must pay, either directly or indirectly, for their proportionate share of the property’s operating expenses.

 

It is the classification and definition of operating expenses that really sets this lease type apart. The “triple net” is a reference to the three main expense categories in commercial real estate: 1) property taxes, 2) property insurance and 3) common area maintenance.

 

As referenced above, under this lease type, the tenant would either pay some or all of these expenses directly or they would reimburse the owner for the expense. The latter method of payment and responsibility is key, in that the owner will pay for these three expenses first, then bill the tenant afterwards.

 

This lease type, like all commercial real estate agreements, has its pros and cons for both owner and tenant. For example, a single tenant building owner may want to transfer responsibility of major repairs to the tenant since the building is purpose-built for them. Or, an owner may want to limit their exposure to certain utilities at a restaurant and ask the tenant be billed directly.

 

As these two examples may hint at, different property types tend to prefer the triple net lease more than others. You may never see a triple net lease at an apartment building but the majority of retail assets you come across likely use a triple net lease.

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