Triple Net (NNN) Leases Explained
What a tenant actually pays under NNN, how it differs from gross and modified gross, and why the quoted rate alone tells you almost nothing.
Leasing · 648 words · updated 2026-08-26
A commercial rent quote is meaningless until you know the lease structure behind it. The same building can be advertised at $22.00 and at $38.00 per square foot per year and describe an identical economic deal — the difference is who pays the operating costs.
The three nets
"Triple net" refers to three expense categories passed through to the tenant on top of base rent:
- Property taxes — the real estate tax assessed on the parcel.
- Building insurance — the landlord's property and liability coverage.
- Common area maintenance (CAM) — janitorial, landscaping, parking lot, security, management fee, utilities for common areas, and routine repairs.
Under a true NNN lease the quoted rate is base rent only. The tenant additionally pays its pro-rata share of those three buckets, usually estimated monthly and reconciled annually. In single-tenant net lease deals — the structure behind most net-lease investment product — the tenant often pays those costs directly rather than reimbursing the landlord.
The structure ladder
| Structure | Quoted rate includes | Tenant additionally pays |
|---|---|---|
| Full service / gross | Base rent + taxes + insurance + CAM + in-suite utilities and janitorial | Nothing, until the expense stop is exceeded |
| Modified gross | Base rent + some operating costs, negotiated line by line | Whatever was carved out — commonly electricity and janitorial |
| Industrial gross | Base rent + taxes + insurance | Its own maintenance and utilities |
| Triple net (NNN) | Base rent only | Taxes, insurance, CAM, own utilities and janitorial |
| Absolute net / bondable | Base rent only | Everything, including roof, structure and casualty restoration |
Converting a quote to gross-equivalent
To compare offers, add the expense load back:
Gross-equivalent rent = base rent + operating expense load per SF
If a suite is quoted at $22.00 NNN and the building's operating expenses run $13.50 per square foot, the tenant's real occupancy cost is $35.50 per square foot per year before in-suite electricity. A competing full service quote of $34.00 is the cheaper deal, not the more expensive one.
The expense load is the number to interrogate. Ask for the last two years of actual reconciliations, not the current-year estimate. Ask which line items are capped, which are excluded, and how the management fee is calculated — a fee charged as a percentage of gross receipts including reimbursements compounds on itself.
The clauses that decide who really carries the risk
- Base year / expense stop. In gross leases the landlord absorbs operating costs up to a stated base year level; the tenant pays increases above it. A base year set during a low-occupancy year understates the stop and creates immediate pass-throughs.
- Caps. Controllable CAM is often capped at 3–5% annual growth, cumulative or non-cumulative. Taxes, insurance and utilities are usually excluded from the cap — which is where the increases actually come from.
- Gross-up. Variable expenses are typically grossed up to 95% occupancy so that a tenant in a half-empty building is not charged the per-SF cost of running it half empty. Absence of a gross-up clause in a lease-up asset is a real exposure.
- Capital versus expense. A well-drafted lease excludes capital replacement from CAM, or amortises it over its useful life at a stated rate. A silent lease lets a roof replacement land in one year's reconciliation.
- Audit rights. The right to inspect the landlord's books, the window to exercise it, and who pays if the audit finds an overcharge above a threshold.
Why investors price NNN differently
Net lease structures shift inflation and operating risk to the tenant, which makes the income stream more bond-like and, for a given credit, supports a lower cap rate. That premium is a function of the tenant's credit and the remaining term — the weighted average lease term (WALT) — far more than of the property. A 15-year absolute net lease to an investment-grade covenant trades on the covenant. The same building with three years remaining trades on the real estate.