# Triple Net Lease (NNN): Definition, Uses, and Investment Insights

> **Definition**
>
> A triple net lease (NNN) is an arrangement in which the tenant agrees to cover both the rent and any ongoing expenses on a property. This type of lease can benefit both landlords and tenants, thought the latter group is at risk should tax and insurance costs rise.

## What Is a Triple Net Lease (NNN)?

A triple net lease (NNN) is a type of commercial property [lease](https://www.investopedia.com/terms/l/lease.asp) wherein the tenant is responsible for paying all ongoing expenses related to the property, alongside the rent. This includes real estate taxes, [building insurance](https://www.investopedia.com/the-best-commercial-property-insurance-11757715), and maintenance costs. Unlike single (N) or double net (NN) leases, which only require tenants to cover property taxes or both taxes and insurance, respectively, triple net leases offer tenants control over property-related expenses while reducing the rent due.

### Key Takeaways

*   A triple net lease (NNN) requires tenants to cover property taxes, insurance, and maintenance costs, offering landlords a stable income while tenants gain control over property management expenses.
*   In commercial real estate, triple net leases feature lower rents compared to standard leases, compensating tenants for the additional risk of covering operating expenses.
*   The primary advantage for investors with triple net leases is securing long-term, steady income from high-grade commercial properties with minimal management duties.
*   Despite providing stability to landlords, triple net leases can expose tenants to potential increases in property tax and insurance costs, which may outweigh reduced rental rates.  
    

![Triple Net Lease (NNN)](https://www.investopedia.com/thmb/GAsUrCxjga9sNNzbyh29IHv9fXc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Triple-net-lease-nnn-4552585e840b4ca1b3fae9e52be010f6.png)

*Triple net leased properties offer an avenue into real estate investing without many of the costs. — Investopedia / Michela Buttignol*

## How Triple Net Leases Work

In commercial real estate, a [net lease](https://www.investopedia.com/ask/answers/040115/what-are-differences-between-single-double-and-triplenet-leases.asp) means the tenant pays some or all of the taxes, fees, and maintenance costs. With a triple net lease, the tenant is required to pay the building's [property taxes](https://www.investopedia.com/terms/p/propertytax.asp), building insurance, and the cost of any maintenance or repairs over the lease term.

Rent in a triple net lease is usually lower than with a standard lease. The [cap rate](https://www.investopedia.com/terms/c/capitalizationrate.asp) is the expected return on a commercial property. The cap rate, used to calculate the lease amount, often depends partly on the tenant's credit rating.

> **Fast Fact**
>
> Commercial property is real estate used for business activities or profit-generating purposes. It usually refers to buildings that house businesses, but it can also refer to land used to generate a profit and large residential rental properties.

## Advantages of Triple Net Leases for Tenants and Landlords

**For tenants**: The tenant controls the maintenance, upkeep, and appearance of the property and has direct control over the costs they pay, such as electricity or water. Additionally, they can select the insurance carrier of their preference and protest the taxes if necessary.

**For landlords**: A triple net lease provides a steady and consistent revenue stream. Utility expenses, repair costs, taxes, and property management are also passed to the tenant.

## Disadvantages of Triple Net Leases for Tenants and Landlords

**For tenants**: The tenant assumes the risk of tax and insurance cost increases. Additionally, the landlord might overestimate the operating expenses when determining the rental price, which would result in the tenant overpaying for some costs. Finally, unexpected costs may arise during the time of occupancy.  

**For landlords**: Finding good and reliable tenants willing to sign a triple net lease can be challenging. Downtime between tenants could result in no rental income while the building is vacant. The tenant's financial strength and stability are key since they're responsible for operating expenses.  

## Investment Insights: The Appeal of Triple Net Leased Properties

Triple net leased properties are a popular investment vehicle for investors seeking steady income with relatively low risk. Triple net lease investments typically include a portfolio of three or more high-grade [commercial properties](https://www.investopedia.com/terms/c/commercial-property.asp) fully leased by a single tenant with existing in-place cash flow.

The commercial properties could include office buildings, shopping malls, industrial parks, or free-standing buildings operated by banks, pharmacies, or restaurant chains. A typical lease term may last 10 to 15 years, with rent escalation.

Benefits for investors include steady income and potential property value growth. Investors can own high-quality real estate without worrying about vacancies, improvement costs, or leasing fees. When these properties are sold, investors can reinvest in another triple net lease without paying taxes using a [1031 exchange](https://www.investopedia.com/financial-edge/0110/10-things-to-know-about-1031-exchanges.aspx).

> **Important**
>
> Investors in triple net lease investment offerings must be accredited with a net worth of at least $1 million excluding the value of their primary residence or $200,000 in income ($300,000 for joint filers). Smaller investors may participate in triple net lease real estate by investing in real estate investment trusts (REITs) that focus on such properties in their portfolios.

## Triple Net Lease Example

## What Are Single and Double Net Leases?

The lease with the least tenant risk is a [single net](https://www.investopedia.com/terms/s/single-net-lease.asp) lease, as the tenant pays just the property taxes. [Double net](https://www.investopedia.com/terms/d/double-net-lease.asp) leases are also common in commercial real estate. With these, the tenant pays two out of three obligations: property taxes, insurance premiums, and rent.

## Can Tenants Negotiate a Triple Net Lease?

With a triple net lease, almost all responsibilities fall on the tenant. The tenant is responsible for paying rent and all overhead costs associated with owning the property: taxes, insurance, operating expenses, utilities, etc. As a result, the base rental amount can become a key negotiating term. Because the tenant is taking on the risk of the landlord's overhead, they may be able to negotiate a more favorable base rental amount.

## How Is a Triple Net Lease Payment Calculated?

There are various ways the amount of a triple net lease can be calculated. Sometimes landlords will add all the property taxes, insurance, maintenance, and common area expenses for a building and divide the total by 12; the resultant number is the monthly cost. This process is simplified when only one tenant is leasing a building. The monthly base rental amount, meanwhile, is typically calculated based on a rate per square footage.

## Do Individual Tenants Have to Worry About Paying Net Lease Obligations on an Apartment?

Net leases are typically used in [commercial real estate](https://www.investopedia.com/terms/c/commercialrealestate.asp), not residential units. Residential tenants might have to pay some utilities, and they're often encouraged to buy renters' insurance. A residential landlord, however, would typically pay for the property and liability insurance and real estate taxes.

## The Bottom Line

A triple net lease can be a good option for landlords and tenants. Landlords can hand off paying various property expenses, enjoy a stable source of income, and focus on their own business. Tenants, meanwhile, may receive a lower monthly rent and maintain control of the property.

> **Article Sources**
>
> 1.  Internal Revenue Service. "[Like-Kind Exchanges - Real Estate Tax Tips](https://www.irs.gov/businesses/small-businesses-self-employed/like-kind-exchanges-real-estate-tax-tips)."
>     
> 2.  U.S. Securities and Exchange Commission. "["Accredited Investor" Net Worth Standard](https://www.sec.gov/info/smallbus/secg/accredited-investor-net-worth-standard-secg)."