Triple Net (NNN) Leases: What Tenants Actually Pay

Lease Structures Compared

What a Triple Net Tenant Actually Pays

Base rent is quoted per rentable square foot per year. On top of it, an NNN tenant typically pays a pro rata share of real estate taxes, the landlord’s building insurance, and common area maintenance (CAM) charges, usually billed monthly as an estimate and reconciled annually against actual costs. How that share is calculated, capped and reconciled is set out in our guide to CAM charges.

The practical risk is that base rent is fixed and knowable while the net charges are not. A lease quoted at a modest base rent can cost far more once taxes rise or a large maintenance project lands in the CAM pool.

Which of these costs you carry is set entirely by the lease language, so the structure is worth settling with a commercial lease attorney before you sign a letter of intent.

Comparing Two Offers on the Same Space

Headline rent tells you little until the net charges are added. Take 3,000 rentable square feet offered two ways:

• Gross lease at $42 per square foot: $126,000 a year, operating costs inside the rent
• Triple net at $30 per square foot plus $8 CAM, $5 real estate taxes and $1.50 insurance: $44.50 all in, or $133,500 a year

The triple net deal looks 29% cheaper and costs about 6% more. It is also the one that can move: the $14.50 of net charges is an estimate, and a tax increase or a roof repair lands on the tenant rather than the landlord. A gross lease shifts that risk back, which is why gross rents are quoted higher to begin with.

The figure worth comparing is net effective rent across the full term: total rent and net charges, less free rent and any build-out contribution, divided by the number of months. Two offers a dollar apart per square foot often differ by considerably more once a few months of free rent and an allowance are counted.

What to Negotiate in an NNN Lease

1. Caps on controllable costs. Limit annual increases in the costs the landlord controls, such as management and landscaping, while accepting that taxes and insurance are not controllable.
2. Exclusions. Capital improvements, roof and structural work, costs of leasing other space, and the landlord’s own overhead should be carved out or amortized.
3. Audit rights. The right to review the landlord’s books after the annual reconciliation, with a time limit that is workable.
4. Tax protest rights. Who can challenge an assessment, and how a refund is shared.
5. Base year or expense stop. In office space, negotiate to pay only increases over a base year rather than every dollar from day one.
6. Definition of rentable square footage. Loss factors and remeasurement can quietly increase your share.

Triple Net Leases in New York City

NYC retail and ground-floor space is commonly leased on a net basis, and the tax component matters more here than in most markets because assessments can move sharply. Ground leases and single-tenant buildings often use absolute net structures, where the tenant carries roof and structure too. Landlords typically also require a good guy guaranty from the principal, which is separate from the rent structure but part of the same negotiation.

For Landlords and Investors

NNN structures shift operating risk to the tenant and produce more predictable net income, which is why net-leased assets trade on the strength of the tenant’s credit and the length of the term. The drafting details decide whether that predictability holds: a poorly defined CAM clause or an uncapped exclusion list invites disputes at reconciliation time.

Frequently Asked Questions