Net Lease
In a net lease, the tenant pays property expenses. Learn about single, double, and triple net leases in commercial real estate.
Definition
A net lease is a commercial leasing arrangement where the tenant pays some or all operating expenses in addition to rent. There are several types: a single net lease (N) requires the tenant to pay property taxes; a double net lease (NN) adds insurance; and a triple net lease (NNN) requires the tenant to pay property taxes, insurance, and maintenance. Net leases shift financial responsibilities to the tenant, resulting in lower base rent for tenants and more predictable net income for landlords. Tenants should carefully review lease terms to understand expense obligations.
Why It Matters
In a net lease the tenant picks up expenses that a landlord would normally carry, which is why the quoted rent looks low. On a triple net lease the tenant pays taxes, insurance and maintenance on top of base rent, so the real occupancy cost can run well above the headline number and moves every year with the tax bill and the roof.
Examples
A triple net retail space quotes $22 per square foot base rent, with $8 in taxes, insurance and common area charges bringing the true cost to $30.
A single net tenant absorbs a $4,100 property tax increase after a county reassessment, with no cap in the lease to limit it.
An investor buys a NNN property leased to a national pharmacy for 15 years, valuing the predictable income more than the higher yield of a managed building.
Tips
Ask for the last three years of actual operating expenses, not the landlord's estimate. The gap between the two is where net lease surprises live.
Negotiate a cap on annual increases in the controllable expenses. Taxes rarely get capped, but management and common area charges often can be.
Establish who owns roof and structure before signing. It is the single largest maintenance item and the most commonly disputed line in a triple net lease.
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