Why Is The Triple Net Lease So Popular?

Updated on July 23, 2020

Triple net leases a popular type of lease that commercial real estate landlords use. You’ll also see it abbreviated as NNN or an NNN lease. What is the difference between this lease and a double net lease, single net lease, and other commercial lease types like a gross lease or an absolute net lease? Are these leases only good for the landlord or are they advantageous to the tenant as well? Let’s dig in.

What Is a Triple Net Lease (NNN)?

A triple net lease (NNN or NNN lease) is a lease agreement where the tenant pays all the expenses of the property including real estate taxes, building insurance, and common area maintenance (CAM) charges. These payments are on top of the base rent and utilities. These payments are typically the responsibility of the landlord. To quickly break down net leases:

Single Net Lease: includes property taxes as well as base rent and utilities

Double Net Lease: includes property taxes and property insurance as well as base rent and utilities

Triple Net Lease: includes property taxes, property insurance, and common area maintenance/operating expenses as well as base rent and utilities

If a property owner leases out a building to a business using a triple net lease, the tenant is responsible for paying the building’s property taxes, building insurance, and the cost of any common area maintenance or repairs the building needs during the lease term. Because the tenant is covering these costs, the rent charged in the triple net lease is generally lower than the rent charged in a standard lease agreement.

Triple Net Leases For Owners And Investors

Triple net lease investments are popular with investors and owners because they have a stable income and generally low risk. The typical lease term is from 10 to 15 years, with rent escalation built-in contractually. There is also the opportunity to sell with a significant upside after years of stable cash flow. Investors can invest in high-quality commercial real estate without concern for vacancies thanks to a long lease and the strong tenant means they likely will not have to be concerned with rent payment issues. When the properties are sold, investors can use a 1031 exchange to place capital into another triple-net-lease investment without paying taxes.

Triple Net Leases For Tenants

NNN leases are not just good for owners and investors. They can have their perks for the tenant as well. The tenant can customize a space better as they have more capital available to them because they did not have to use it for a purchase. The base rent is less for a NNN lease and in a complex with multiple tenants, the insurance, taxes, and maintenance are spread out over the entire tenant base making it a smaller prorated amount. Although the base rent is lower than a gross lease, tenants should consider the rising cost of taxes and insurance. It may be low year to year, but over 10 to 15 years the rise in cost may be substantial. The maintenance costs on commercial property like a shopping center may have substantial capital expenditures needed at some point so be sure you understand how those potential costs are structured in your lease

There are different types of commercial leases you can learn about on our site. If you would like to learn more about triple net leases or if you have any questions regarding the real estate investing industry, the team at First National Realty Partners is here to help. We’re here to answer your questions and provide guidance about your investment opportunities. If you would like to know more about the benefits of private equity commercial real estate investing, please don’t hesitate to reach out. Our team is built with the best industry leaders, utilizing proven strategies that create great investment opportunities for you. Contact us any time when you are ready to learn more about the possibilities of investing in commercial real estate.

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