NNN: Net Lease

What is a Triple Net Lease (NNN)?

What is a triple net lease (NNN)?

A triple net lease is a real estate lease agreement in which the tenant/lessee agrees to pay for all of the property expenses including: janitorial, maintenance, property taxes and property insurance. These NNN expenses are added on to the cost of rent and utilities. Because the tenant is covering these costs, which would otherwise be the responsibility of the property owner, the rent charged in a triple net lease can sometimes be lower than the rent charged in a full service gross lease. A full service gross (FSG) lease is a lease agreement in which the landlord agrees to pay all of the tenant/lessee occupancy expenses. There is a lease type comparison table at the bottom that further details how expenses are paid across different commercial lease types.

Who benefits from a triple net lease?

Both tenants and landlords can benefit from NNN leases, though landlords likely benefit more heavily. A NNN lease provides a tenant more freedom as they can customize a property and implement brand uniformity without the capital required for a property purchase. For a landlord, triple net leases offer a consistent source of income with very few to no overhead costs. Additionally, in NNN leases the tenant is pretty much responsible for every aspect of the property, so the landlord has limited management responsibilities.

How do you calculate a triple net lease?

There are various ways to calculate the expenses in a NNN lease. The number of tenants in a building and the square footage occupied by each tenant will determine how NNN expenses are calculated and paid.

In the case of a single tenant building, a landlord can start by adding up all the yearly expenses for the building including: janitorial, maintenance, property taxes, and property insurance and dividing the total by 12. This number is the monthly cost of the NNN expenses. The landlord can then add the NNN expenses on top of the base rent and utilities to provide the tenant their total monthly payment.

In the case of a multi-tenant building, landlords or property managers proportionally divide the NNN expenses amongst the tenants in the building. The percentage of the NNN expenses is typically divided by “pro-rata share” meaning it is calculated by dividing the individual square footage occupied by the total leasable area of the building. Each tenant’s portion of the NNN expense is then calculated into their monthly payment.

Lease type expense comparison

Not all leases are equal and responsibility for expenses will often be determined based on the lease type chosen. This table compares how expenses are allocated across the different types of commercial leases including: Triple Net (NNN), Modified Gross (MG) and Full Service Gross (FSG).

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