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The Triple Net Lease: Why is it So Popular?

Updated May, 2018

Triple net leases are widely popular among commercial real estate landlords, and as you search for your next office space, you’re sure to come across this type of lease. This common lease is sometimes written as “NNN,” an abbreviation of “net, net, net.”

But what exactly is a triple net lease and how is it different from a gross lease or a percentage lease? In this article, we’ll go over exactly what is covered under a triple net lease, why signing a triple net lease could be to your advantage, and how to get the most out of a triple net lease.

Triple Net Lease | The Basics

Each “N” in the “NNN” lease represents an aspect of the building’s operation expenses that the tenant agrees to pay for in addition to the rent. Under a triple net lease, you would be responsible for:

  • Real estate taxes
  • Insurance
  • The majority of maintenance fees.

While triple net leases are more common than single or double net leases, it’s good to know what each additional “N” adds to the lease. Under a double net lease, the tenant is financially responsible for real estate taxes and insurance, while under a single net lease the tenant is usually only responsible for the real estate taxes.

You’re most likely to encounter a triple net lease if you’re looking to sign a long-term lease of 10+ years in a freestanding commercial building. There’s also a high possibility that your company will be the primary tenant of the building.

The Finer Details of a Triple Net Lease

  1. Insurance: With a triple net lease where one company rents the entire building, that tenant is required to carry an insurance policy for the building as well as potentially pay for any deductibles or uninsured damage during their tenancy. During lease negotiations, the tenant and landlord may agree that the tenant pays directly to the insurance provider instead of through the landlord, but the landlord must always have a copy of the policy.
  2. Taxes: Be sure to budget for annual property taxes and assume they will be raised yearly.
  3. Maintenance fees: Often the most vaguely defined stipulations of a triple net lease apply to maintenance fees. Some landlords will list everything including structural parts of the building, like the roof, while others will not require the tenant to pay for all maintenance fees.
  4. Rent: Triple net leases often have contractual rent increases built in, so review and set aside part of your budget in advance.

 

photo; triple net lease signing

Another way to think about a triple net lease is that is opposite from a gross lease, where all three building expenses (real estate taxes, building insurance, and maintenance fees) fall under the landlord’s responsibility. Residential landlords are more likely to use a gross lease, while triple net leases are more favorable for commercial real estate landlords.

You can review the differences between the triple net lease and other lease types below.

Lease Type Expenses Use Case
Gross Lease You pay rent, the landlord covers all operating expenses but may recoup his costs with “Load Factor” in the rent. Any commercial space
Modified Gross Lease You pay rent + a portion of the building’s annual operating expenses after the first year (base year) of your lease. Any commercial space
Triple Net Lease You pay rent + taxes, insurance, and maintenance fees Any commercial space
Double Net Lease You pay rent + taxes and insurance Any commercial space
Net Lease You pay rent + some degree of taxes, insurance, and maintenance fees Any commercial space
Absolute Lease You pay rent + all building expenses (taxes, insurance, maintenance), including roof and structure repairs. Long-term leases to credit tenants
Percentage Lease You pay rent + a percentage of your monthly sales Retail space

 

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