Rent & Operating Costs
Triple net lease (NNN)
Also called: NNN lease, net net net lease
A triple net lease is a commercial lease in which the tenant pays base rent plus its proportionate share of three operating costs: property taxes, building insurance, and common area maintenance. The landlord receives rent that is net of those three expenses, which is where the name comes from.
A triple net lease splits a building's cost structure so that the landlord collects a predictable base rent and the tenant absorbs the variable operating costs. The three nets are property taxes, building insurance, and common area maintenance, usually abbreviated to CAM. Retail and industrial leases are triple net far more often than office leases, which tend to run on a base year or full service structure instead.
What the tenant actually pays
Quoted rent on a triple net deal is only part of the number. A space quoted at $28.00 per square foot NNN with $9.50 in estimated nets costs $37.50 per square foot all in, and the $9.50 is an estimate that reconciles against actuals at year end. Tenants who budget off the quoted rate alone are routinely surprised by the first CAM reconciliation.
Where the negotiation happens
The base rent number gets the attention, but the money in a triple net lease moves in the definition of operating expenses. Watch for:
- Capital expenditures dressed as maintenance. A roof replacement is a capital item with a twenty year life. If the lease lets the landlord expense it in the year it is spent, a single line item can swamp a small tenant's annual nets.
- Management fees. Commonly 3 to 5 percent of gross receipts. Confirm whether the fee is charged on base rent alone or on base rent plus recoveries, because the second version charges a fee on the fee.
- Administrative loads. A 15 percent administrative charge layered on top of CAM is negotiable and frequently gets reduced or struck.
- The absence of a cap. An operating expense cap on controllable expenses is the single most useful protection a tenant can win here.
Absolute net versus triple net
An absolute net lease, sometimes called a bondable lease, goes further than NNN and puts structure, roof, and every capital replacement on the tenant. Single tenant net lease investment deals are usually absolute net. If a landlord's draft calls the lease "triple net" but the maintenance article assigns roof and structure to the tenant, the label and the mechanics disagree, and the mechanics govern.
What to check in the redline
The definition of operating expenses and the exclusions list are where changes hide. A landlord counter that quietly deletes three lines from the exclusions list looks trivial in a tracked changes view and can cost more than a rent bump. Read the exclusions article in every round, not just the rent article.
Catch this clause when it changes
CRE Redline pulls every tracked change out of each redline round, ranks it by how much it moves, and keeps contested clauses visible from round to round. Round 1 of every deal is free.
Analyze your first round freeRelated terms
CAM charges are the tenant's proportionate share of the cost of operating and maintaining a property's shared areas, billed monthly as an estimate and trued up against actual spend after the year closes.
A CAM reconciliation is the annual statement in which a landlord compares the estimated common area maintenance payments a tenant made during the year against the property's actual operating costs, then bills or credits the difference.
An operating expense cap limits how much a tenant's share of operating costs can rise year over year, typically stated as a percentage such as 5 percent.
A base year is the calendar year whose operating expenses are built into a tenant's base rent, so the tenant pays only its share of increases above that year's costs.
A gross-up provision adjusts a building's variable operating expenses to what they would have been at a stated occupancy level, commonly 95 percent, before the tenant's share is calculated.
This page is general information, not legal advice. Review lease language with qualified counsel.