Triple Net Lease (NNN) – Meaning, Uses, Pros & Cons

Triple Net Lease (NNN) – Meaning, Uses, Pros & Cons

What Is Triple Net Lease?

At its core, a triple net lease is an agreement between a tenant and a landlord in which the tenant agrees to pay all of the operating expenses associated with owning and maintaining the property.

These expenses can include things like insurance, taxes, and repairs.

The term “triple net” refers to the three types of expenses that are typically covered under this type of lease: Net Rent, Taxes, and Insurance.

 

Single Net Lease vs. Double Net Lease vs. Triple Net Lease

While a triple net lease is the most common type of commercial lease, there are also single net leases and double net leases.

As the name implies, a single net lease only covers one type of expense (usually rent), while a double net lease covers two types of expenses (usually rent and taxes).

A triple net lease covers three types of expenses (usually rent, taxes, and insurance).

 

Everything You Need to Know about “NNN” (An Intro to Triple Net Leasing, Investing)

 

Why Would Someone Choose a Triple Net Lease?

There are a few reasons why someone might choose to sign a triple net lease.

Long-term occupancy

One of the biggest advantages of a triple net lease is that it can provide the tenant with a sense of security and stability.

Since the tenant is responsible for all of the operating expenses associated with the property, they have an incentive to stay in the space for a long period of time.

Predictability

Another advantage of a triple net lease is that it can provide the tenant with predictability when it comes to their monthly expenses.

Since the tenant is responsible for all of the operating expenses, they will know exactly how much their expenses will be each month.

For the landlord, it means a predictable income stream.

Many investors like NNN REITs for this reason.

Flexibility

A triple net lease can also be advantageous for tenants who want more flexibility when it comes to the use of their space.

For example, if a tenant wants to make changes to the property, they can typically do so without having to go through the landlord.

Reduced landlord duties

Another advantage of a triple net lease from the landlord’s perspective is that it reduces their duties and responsibilities.

Since the tenant is responsible for all of the operating expenses, the landlord does not have to worry about these things. This can be a big relief for landlords who own multiple properties.

Tax benefits

Another advantage of a triple net lease is that it can provide tax benefits for the landlord.

Since the tenant is responsible for all of the operating expenses, the landlord can deduct these expenses from their taxes. This can save the landlord a significant amount of money.

 

Drawbacks of a Triple Net Lease

There are also a few drawbacks that come with signing a triple net lease.

Increased Responsibility on the Tenant

The biggest drawback of a triple net lease is that it increases the amount of responsibility that the tenant has.

Since the tenant is responsible for all of the operating expenses, they will need to be diligent about budgeting and keeping up with repairs.

Potential for Higher Expenses

Another potential drawback of a triple net lease is that the tenant may end up paying more in expenses than they would under a different type of lease.

This is because the tenant is responsible for all of the operating expenses, even if those expenses go up.

For example, if the property taxes go up, the tenant will be responsible for paying the difference.

 

How to Negotiate a Triple Net Lease

If you’re thinking about signing a triple net lease, there are a few things that you’ll need to keep in mind when it comes to negotiation.

1. Make sure you understand all of the terms and conditions of the lease.

2. Don’t be afraid to negotiate. Remember, the landlord often wants to keep you as a tenant (turnover and vacancy is costly), so they may be willing to make some concessions.

3. Get everything in writing. This will help avoid any misunderstandings down the road.

4. Make sure you understand your responsibilities. As the tenant, you will be responsible for all of the operating expenses, so make sure you are prepared to budget for these things.

Triple net leases can be advantageous for both tenants and landlords, but it’s important to understand all of the terms and conditions before signing one.

 

What Are Some Examples of a Triple Net Lease?

Walgreens regularly agrees to triple net lease agreements.

They usually enter into 25-year agreements. Under the terms of these agreements, Walgreens is typically responsible for paying all of the operating expenses associated with the property.

This included things like taxes, insurance, and repairs. In exchange for assuming these costs, Walgreens is usually able to get a lower rent price in prime locations.

Other commercial retailers that have signed triple net leases include Best Buy, Lowe’s, and Target.

 

Summary – Triple Net Lease

A triple net lease is a type of commercial lease agreement where the tenant agrees to pay all of the operating expenses associated with the property.

This includes things like taxes, insurance, and repairs. In exchange for assuming these costs, tenants usually get a lower rent price.

There are both advantages and disadvantages to signing a triple net lease.

Some of the advantages include a predictable income stream, flexibility, reduced landlord duties, and tax benefits.

Some of the disadvantages include increased responsibility, potential for higher expenses, and the need to negotiate.

If you’re thinking about signing a triple net lease, make sure you understand all of the terms and conditions before doing so. It’s also important to remember that you can negotiate the terms of the lease. By getting everything in writing, you can help avoid any misunderstandings going forward.

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