If you have looked at commercial space in the last few years, you have almost certainly seen the term NNN (triple net) in the marketing materials. It is one of the most common lease structures in commercial real estate, but the acronym can obscure how much variability there is between deals.
What NNN actually means
Under a triple-net lease, the tenant pays base rent plus a proportional share of three categories of expense:
- Property taxes on the building or the tenant’s share of the parcel.
- Insurance, typically the landlord’s property and casualty policy.
- Common area maintenance (CAM), the operating expenses of the building and its common areas.
Utilities and interior maintenance are usually the tenant’s responsibility on top of that, though this varies.
What to negotiate carefully
- Base year vs. pure NNN. Some leases marketed as NNN actually pass through only increases above a base-year amount. Read carefully.
- CAM caps. Ask for annual caps on controllable expenses so you are not exposed to open-ended increases.
- Audit rights. You should be able to inspect the landlord’s books to verify pass-throughs.
- Exclusions. Capital repairs, roof replacement, and structural work should not be lumped into CAM under standard NNN treatment.
Why landlords like NNN
NNN structures shift operating expense risk to the tenant, which is why investment-grade single-tenant net-leased properties trade at some of the lowest cap rates in the market. From the tenant’s side, the trade-off is more visibility and control over occupancy costs, assuming the lease is well-drafted.
If you are reviewing a commercial lease and want a second set of eyes, we are happy to help.
