Triple Net Lease (NNN)

How a triple net lease works

In a triple net lease the tenant pays base rent to the landlord and then pays, directly or by reimbursement, the three costs of operating the building:

1. Real estate taxes on the property.
2. Building insurance, meaning the landlord's property policy, which the tenant reimburses.
3. Maintenance, including common areas, parking, landscaping and building systems, to the extent the lease assigns it to the tenant.

Because those costs move to the tenant, the rent the landlord receives is close to net operating income. That is the idea behind the name: the rent is net of the expenses of owning the building. Single-tenant buildings such as freestanding retail, drugstores, restaurants, industrial and warehouse properties are the typical NNN properties, though multi-tenant centers also use it with each tenant paying a pro rata share.

Two things are worth knowing from the start. First, there is no statute or regulation that defines "triple net." It is a market term, and two leases both called NNN can split costs very differently. Second, the tenant's payments are usually not an extra form of rent that disappears into the landlord's pocket: they cover real bills. Taxes go to the county and premiums go to the insurer.

Direct payment or reimbursement

The sole tenant of a single-tenant building often pays the tax bill and insurance premium directly. In a multi-tenant building the landlord pays first and bills each tenant for its share, commonly as a monthly estimate that is reconciled to actual costs after year end. That share is typically the tenant's square footage divided by the building's square footage: a 10,000 square foot tenant in a 100,000 square foot building pays 10%. The reimbursement for shared areas is usually called CAM, common area maintenance.

Worked example: what the tenant pays

A 10,000 square foot tenant leases space in a 100,000 square foot retail center on an NNN lease at $18.00 per square foot of base rent. The building's annual costs are illustrative: property taxes $120,000, insurance $40,000 and common area maintenance $90,000.

Item	Building total	Tenant's 10% share
Property taxes	$120,000	$12,000
Insurance	$40,000	$4,000
Common area maintenance	$90,000	$9,000
Total operating costs	$250,000	$25,000 ($2.50 per sq ft)
Base rent ($18.00 × 10,000)		$180,000
All-in annual occupancy cost		$205,000 ($20.50 per sq ft)

A tenant comparing this space with a gross-lease space quoted at $22.00 per square foot should compare $20.50 with $22.00, not $18.00 with $22.00. The figures are illustrative assumptions, not market data.

Now the landlord's side. If only 90% of the building is leased, the other 10% of the costs ($25,000) does not get reimbursed unless the lease grosses up variable costs or the landlord recovers it elsewhere. A vacant suite in an NNN center is therefore a real expense for the owner, one reason lenders look at occupancy even when the leases are net.

NNN vs. gross, modified gross, single net and absolute net

Lease types describe how much of the building's operating cost the tenant carries. Descriptions vary somewhat by broker and region, so treat this as a guide and check the lease.

Lease type	Who pays taxes, insurance and maintenance	Rent level
Gross (full service)	Landlord pays these from a single rent. Tenant often pays its own utilities or janitorial, depending on the lease.	Highest base rent
Modified gross	Split. A common form is a base year: the landlord pays costs up to the base-year level and the tenant pays increases above it.	Between gross and NNN
Single and double net	Tenant pays one or two of the three nets, often taxes and insurance.	Lower than gross
Triple net (NNN)	Tenant pays taxes, insurance and maintenance. Landlord commonly retains roof, structure and other capital items unless the lease says otherwise.	Lower base rent
Absolute (bondable) net	Tenant pays everything, including structural repairs and replacement, and keeps paying rent even after casualty or condemnation.	Lowest base rent

Gross and modified gross leases are the comparison point for most NNN questions, and the effect shows in the numbers: a gross-leased building carries a high operating expense ratio, while a net-leased building can show a very low one on similar NOI.

The roof and structure: where leases differ

The most common dispute in an NNN lease is not taxes. It is the roof. Many NNN leases have the tenant pay for routine roof maintenance and minor repairs while the landlord keeps responsibility for replacing the roof and for the structure and foundation. Others, especially absolute net leases, push those costs to the tenant. Some leases amortize a large replacement over its useful life and pass the portion falling within the lease term to the tenant. Because replacing a roof can reasonably be described as either a repair or a capital expenditure, the lease's definitions of "repair" and "capital expenditure" matter more than the label NNN.

For a landlord, any capital item left with the owner is a cost the net rent does not cover. That is why a lender's underwriting adds replacement reserves even to a net-leased property.

Why lenders care about NNN

A lender sizes a loan on the rent the borrower will still receive during the loan term. A net lease makes that rent more predictable, because the tenant absorbs cost increases. But the lender's question then moves from the building to the lease, and a single-tenant property is only as strong as one tenant's promise.

• Tenant credit. A national tenant with strong financials supports more leverage than a local operator or a new franchisee. Unrated tenants can be underwritten on their financial statements, and the lender may size the loan more conservatively.
• Remaining lease term against the loan term. Lenders commonly look for the lease to run at least as long as the loan. A lease with only a few years left means the borrower must re-lease the building before the loan is paid off.
• Who pays for roof, structure and capital items. This sets the reserves and decides how much of the rent is really net.
• Rent against market. Above-market rent is safe only while the tenant stays. Lenders consider what the building would rent for to someone else.
• Renewal options, termination rights and dark clauses. A tenant right to terminate early or go dark undermines the term the lender is lending against.
• Estoppel and SNDA. The lender typically asks the tenant to sign an estoppel certificate confirming the lease terms and that no default exists, and a subordination, non-disturbance and attornment agreement (SNDA) under which the lease survives a foreclosure.

Net-leased properties are financed by banks, life companies, CMBS lenders and others, and typical limits vary with the lender. Our investment property loan page lists the typical terms for each loan type.

Worked example: loan sizing on a single-tenant NNN building

A single tenant leases a 10,000 square foot building on an NNN lease at $180,000 of base rent per year. The buyer is purchasing it for $2,400,000. The lender underwrites a 2% allowance for vacancy and credit loss, $1,500 a year of reserves for items the landlord keeps, and a 3% management fee even though the tenant handles the property. It sizes the loan at a 7.0% rate on a 25-year amortization, a 1.25x minimum DSCR and a 70% maximum LTV. These assumptions are illustrative. The loan figures come from our max loan calculator.

	Tenant stays	Re-leasing scenario (rent at 80%)
Base rent	$180,000	$144,000
After 2% vacancy and credit loss	$176,400	$141,120
Less reserves and 3% management	−$6,792	−$5,734
Underwritten NOI	$169,608	$135,386
Binding limit	DSCR	DSCR
Maximum loan	$1,599,000 (66.6% LTV)	$1,277,000 (53.2% LTV)
Cash down on $2,400,000	$801,000	$1,123,000

The same building supports $322,000 less debt if the lender sizes on a rent that is 20% lower, which is how a lender prices a short lease or a weak tenant. Notice that the DSCR limit, not the 70% LTV, sets the loan: net rent is stable, but the debt service test is what binds. At the full rent, $169,608 over a $2,400,000 price is a 7.07% cap rate (see cap rate). The practical lesson is that the lease, not only the building, sets the loan: a renewal signed before you refinance can lift the loan the way the left-hand column does.

Pros and cons

• For the landlord: predictable net income and little day-to-day management; the risks are one tenant's credit, a vacancy that leaves the owner paying every cost, and capital items the lease leaves with the owner.
• For the tenant: lower base rent and control over upkeep; the risks are rising taxes, insurance and repairs that the tenant cannot predict.

What it means for the buyer

NNN properties are priced by cap rate on the net rent, so the market pays for lease length and tenant strength as much as for the building. A buyer is, in effect, buying the tenant's lease. That makes the diligence list short but important: read the lease, confirm the tenant's financials, and understand your capital items.

What to watch for

• "NNN" in a listing is a claim, not a fact. Ask for the lease and read the repair, capital expenditure, insurance, taxes and operating expense clauses. Brokers use the label loosely.
• Roof and structure. Find out who replaces the roof, who pays for parking lot repaving and how the lease treats capital costs. Get a property condition report before you rely on net rent.
• Management fees and administrative charges. Some leases let the landlord add an administrative fee to reimbursed costs. Check whether it is capped.
• Caps and audit rights (for tenants). Ask for a cap on controllable cost increases and the right to review the landlord's records.
• Tax reassessment. In many states a sale can raise the assessed value. If the lease passes taxes through, the tenant bears the increase, which affects the tenant's ability to pay rent. A buyer should model taxes at the new assessment.
• Rent bumps. Look at fixed increases, percentage increases or CPI adjustments. Flat rent for 15 years loses value to inflation.
• Re-leasing risk. Know the expiration date. If the lease ends before the loan does, you are betting on renewal.
• Operating history. A lender will ask for the rent roll and the trailing twelve months of reimbursements, and for multi-tenant NNN, the reconciliation of estimates against actual costs.

Triple net lease vs. similar terms

• NNN vs. net lease: "net lease" is the general family. NNN is one type of it.
• NNN and 1031 exchanges: single-tenant NNN properties are a common replacement property for investors doing a 1031 exchange, because the owner has few management duties. The exchange rules are separate; see our 1031 exchange calculator.
• NNN vs. CAM charges: CAM is the common area maintenance part of the third net, usually billed as a pro rata share.
• NNN vs. ground lease: a ground lease leases the land alone, often for decades, and is frequently also net. The two terms are not interchangeable.
• NNN vs. NOI: the lease type decides how large NOI is relative to rent, and a net lease makes the two numbers close.

What it means for you

If you are buying or refinancing an NNN property, assemble the lease, any amendments, the tenant's financial statements, the expense reconciliations and proof of insurance before you ask for a quote. They are the documents the lender will read first. To see how a retail lender looks at a single-tenant building, read retail property loans, and for the income math behind it, what NOI is and how lenders use it. When your lease is in hand, send it with your application and we will show you which test binds.

Sources: lease-type descriptions from industry references including Holland & Knight, "Who Pays for What? Understanding Key Differences in Triple Net Leases" (March 2026) and Prologis, "What Is a Triple-Net Commercial Lease?"; estoppel and SNDA descriptions from commercial real estate law-firm guidance. Lender underwriting factors are described in general terms and vary by lender. There is no statutory definition of a triple net lease; specific obligations depend on the signed lease and state law. Example figures are illustrative and were computed with the BestLoanUSA max loan calculator.