What Is NNN in Real Estate? What It Means and How It Works

NNN is an abbreviation for triple net lease, a type of commercial lease agreement that transfers most of the property expenses from the landlord to the tenant.

In this article, we will explain what NNN means, how it works, and what are its advantages and disadvantages for both parties.

What Is NNN in Real Estate?
What Is NNN in Real Estate? | mcbrayerfirm.com

What Is a Triple Net Lease?

A triple net lease (NNN) is a lease agreement on a property whereby the tenant or lessee promises to pay all the expenses of the property, including real estate taxes, building insurance, and maintenance.

These expenses are in addition to the cost of rent and utilities.

In contrast, in standard commercial lease agreements, some or all of these payments are typically the responsibility of the landlord.

How Does a Triple Net Lease Work?

In a triple net lease, the tenant pays a lower base rent than in a standard lease, but also covers the property’s operating expenses.

The landlord is only responsible for the structural repairs of the property, such as the roof, walls, and foundation.

The tenant has more control over the maintenance, upkeep, and appearance of the property, as well as the costs they pay, such as electricity or water.

A triple net lease is usually a long-term contract, ranging from 10 to 25 years, with rent increases tied to inflation or market rates.

The tenant may also have the option to renew the lease or purchase the property at the end of the term.

What Are the Advantages and Disadvantages of a Triple Net Lease?

A triple net lease has benefits and drawbacks for both the landlord and the tenant, depending on their goals and preferences.

Here are some of the main pros and cons of a triple net lease for each party:

For the Landlord

  • Pros:
    • The landlord has a stable and predictable income stream, as the tenant pays the rent and the property expenses.
    • The landlord has lower risk and liability, as the tenant bears most of the costs and responsibilities of the property.
    • The landlord has less management and administrative duties, as the tenant handles the property’s operations and maintenance.
  • Cons:
    • The landlord has lower returns, as the rent is lower than in a standard lease.
    • The landlord has less control over the property, as the tenant decides how to maintain and improve it.
    • The landlord has less flexibility, as the lease is long-term and hard to terminate.

For the Tenant

  • Pros:
    • The tenant has lower rent, as the landlord charges a lower base rent than in a standard lease.
    • The tenant has more control over the property, as the tenant can customize and optimize it to suit their needs and preferences.
    • The tenant has more stability, as the lease is long-term and protects them from rent increases or eviction.
  • Cons:
    • The tenant has higher expenses, as the tenant pays all the property taxes, insurance, and maintenance costs.
    • The tenant has higher risk and liability, as the tenant is responsible for any damage or loss to the property.
    • The tenant has less flexibility, as the lease is long-term and hard to modify or cancel.

Conclusion

NNN is a common term in commercial real estate that stands for triple net lease, a type of lease agreement that shifts most of the property expenses from the landlord to the tenant.

A triple net lease has advantages and disadvantages for both parties, depending on their goals and preferences.

A triple net lease can be a good option for tenants who want lower rent, more control, and more stability.

However, a triple net lease can also be a bad option for tenants who want lower expenses, lower risk, and more flexibility.

Therefore, before signing a triple net lease, both parties should carefully weigh the pros and cons and consult a professional advisor.

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