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What Are the Pros and Cons of a Triple Net Lease?

Tenants are responsible for all costs associated with a property under a triple net lease.
A triple net lease is more common with commercial properties, rather than with residential leases.
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  • Written By: John Lister
  • Edited By: Kristen Osborne
  • Last Modified Date: 26 May 2015
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A triple net lease is one in which the tenant is responsible for virtually all costs associated with a property, including taxes, insurance and maintenance costs. It is far more common in the commercial property sector than in residential rentals. The main benefits and drawbacks of a triple net lease differ for the landlord and tenant, but they include a lower rent payment, higher costs for the tenant, and the risk that the tenant will not maintain the building as required.

The triple net lease is one of four main types of lease. A gross lease is one where the tenant only pays rent and no other costs; this can be modified, for example in the common system by which the tenant is responsible for utility bills. A single net lease means the tenant also pays the relevant property taxes. A double net lease means the tenant pays the property taxes plus buildings insurance. A triple net lease, also known as Net-Net-Net or NNN, covers all of this, plus the tenant is responsible for maintenance costs.

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For the tenant, the main benefit of a triple net lease is that the rent payment itself is usually relatively low. This can be particularly beneficial if the tenant is able to cover the other costs cheaply. The biggest drawbacks include both the existence of the added cost responsibilities, and the fact that these will apply even if the company's business performance suffers. In particular, tax laws may restrict how much of these cost responsibilities are tax deductible.

For the landlord, the key advantage is that that on an ongoing basis, he has few if any running costs. This means that the rent, albeit it lower than with other types of lease, is a relatively secure source of income. The main drawback, besides the lower rent, is that the landlord is taking a risk in making the tenant responsible for maintenance; if the tenant does a bad job, the landlord may have to either face additional costs, or go through the hassle and expense of enforcing the lease.

There is one step beyond a triple net lease. This is a bondable lease, sometimes called an absolute triple net lease. This means that the tenant is completely responsible for all costs under any circumstances. The most notable consequence of this is that in the event of the building being destroyed, for example in a fire, the tenant must not only continue to pay rent, but must completely rebuild and restore the property, regardless of whether any insurance scheme pays out.

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Logicfest
Post 2

@Markerrag -- I think the article does a good job of pointing out why people would want to take out a triple net lease, but I will provide another. Simply put, this kind of lease means you can get a low payment without having to be tied to a piece of property.

Think about it. You might essentially be paying around as much as a mortgage payment, but you can pick up and leave when the lease expires instead of being stuck owning something.

That is a real blessing in the commercial context as areas go in and out of fashion in a hurry. If you own property in an area that falls out of favor, have fun watching your property values drop. If you lease a property in one of those areas, just cut and run when the lease expires and leave it up to the owner to deal with that dog of a property.

Markerrag
Post 1

These things are downright horrible. It is just renting without any of the benefits of renting. Why on earth would someone rent a property if taxes, maintenance and insurance are covered? Why not just get a mortgage and have done with it. You would at least be building up equity in a property instead of essentially making the mortgage payment for a landlord and having to shell out cash for all sorts of things that renters should not have to worry about.

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