What Is a NNN Lease? A Landlord's Guide to Triple Net
How triple net leases work, what tenants and landlords each pay, how NNN differs from NN and absolute NNN, and what to check before you buy.
The short answer
A triple net (NNN) lease is a commercial lease where the tenant pays base rent plus the three main property expenses: real estate taxes, building insurance, and maintenance. The landlord collects rent that is largely free of operating costs, which is why single-tenant NNN properties are often described as passive investments.
The structure is common for freestanding retail and restaurant buildings, pharmacies, dollar stores, auto parts stores, banks, medical offices, and industrial buildings. It is less common in multi-tenant office, where landlords typically control operations and pass costs through in more complex ways.
Who pays what
In a typical NNN lease the tenant either pays taxes and insurance directly or reimburses the landlord, and handles routine maintenance and repairs. What varies is capital responsibility. Many leases labeled NNN still leave the roof, structure, foundation, or parking lot with the landlord. Others shift even capital replacements to the tenant.
The label is only shorthand. Two leases both marketed as NNN can carry very different landlord exposure. The only reliable way to know is to read the maintenance, repair, insurance, casualty, and condemnation sections of the lease and list every obligation the landlord keeps.
NNN vs. NN vs. absolute NNN
A double net (NN) lease usually makes the tenant pay taxes and insurance while the landlord keeps roof and structure. An absolute NNN lease, sometimes called bondable when rent cannot be abated, transfers every obligation, including capital items and rebuilding after a casualty, to the tenant.
Pricing follows risk. All else equal, an absolute NNN lease with a strong tenant trades at a lower cap rate than a NN lease with the same tenant, because the NN owner must budget for future roof or structural work. When comparing listings, normalize for these differences rather than comparing headline cap rates.
What drives value in a NNN property
Because the tenant pays the expenses, the investment is essentially a bet on the rent stream continuing. Value turns on four things: the credit of whoever is obligated on the lease, the remaining lease term, the rent growth built into the lease, and the real estate itself, meaning location, access, and how the rent compares to market rent if the tenant left.
Experienced buyers weigh the real estate heavily. Corporate credit can change over a 15-year hold, but a well-located parcel with rent at or below market gives an owner options if the tenant vacates. A building with above-market rent in a weak location can lose much of its value if the tenant does not renew.
Frequently asked questions
Does the tenant pay the mortgage in a NNN lease?
No. The tenant pays rent plus taxes, insurance, and maintenance. Any mortgage on the property is the landlord's obligation, paid out of the rent. The landlord's cash flow is rent minus debt service and any costs the lease leaves with the landlord, such as roof or structural repairs.
Is a NNN lease really passive?
Mostly, but not completely. Owners still need to monitor tax and insurance payments, review tenant financial reporting, respond to estoppel and SNDA requests, handle any retained roof or structure duties, and plan for lease expiration. Absolute NNN leases are the most passive, while NN leases require more active oversight and capital planning.
Why do NNN properties with the same tenant have different cap rates?
Cap rates differ because of remaining lease term, rent increases, landlord obligations, location quality, rent relative to market, and which entity guarantees the lease. A 15-year corporate-guaranteed lease with annual bumps in a strong trade area will price very differently from a short-term franchisee lease with flat rent.
What should I check in a NNN lease before buying?
Confirm the guarantor entity, remaining term and options, rent schedule, every landlord obligation, go-dark and recapture rights, assignment provisions, ROFR or ROFO rights, casualty and condemnation terms, and tenant reporting requirements. Then confirm the facts with a tenant estoppel certificate and a property condition report before closing.
Educational content, not tax, legal or investment advice.