The very straight forward definition of a triple-net (NNN) lease is a lease where the lessee (the tenet) is responsible for all expenses related to the building in addition to the base rent. The NNN comes into play because all other expenses can be simplified into three additional subcategories; 1) maintenance, 2) taxes and 3) insurance.
It is important to note that all lease cap rates are based upon a triple net calculation. As one considers the implication of the last column, cap rates are the basis of all valuations and transactions in the commercial real estate industry, so it is critical that the concept of a NNN lease is understood.As the owner of a building with a NNN lease attached, your real estate life is relatively simple. You head to the mailbox on the first of each month and look for your rent check. As long as your tenant hasn’t “mid-night” moved on you, you should have a check equal to the NNN rent. You have no further obligations to the building.
However, if you own a building with a full-service lease attached, you will be obligated to pay the utilities, taxes and maintenance. In addition, unless you outsource the management of the building to a 3rd party property manager, it is you who will receive the calls in the night complaining about leaky toilets, temperatures of offices and any number of maintenance problems and issues.Clearly, there are significant advantages to NNN leases, but where to find buildings with NNN leases? That is the next column.
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