What is a triple net lease? I think my definition may be wrong.

In Leasing Property - Asked by Nancy S. - Sep 29, 2010
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Jeremy F.
Broker/Agent
Oklahoma City, OK

I've been told it stands for taxes, insurance and common area maintenance.

Sep 29, 2010
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Mike N.
Broker/Agent
Holland, MI

that is correct but it might also include management fees

Sep 29, 2010
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Dennis D.
Property/Asset Manager
Flagstaff, AZ

NNN for my buildings is inclusive of all operating costs, on a pro-rated basis (percentage of tenant space vs. Entire bldg space). This normally includes: maintenance, landscaping, parking lot maint., common utilities, snow removal, elevator expense, security, etc. Anything, any expense that benefits all tenants, and is an operating expense for the building. Usually, each tenant has their own utility Meters for gas, electric, phones, etc.
Most building have one water meter, which includes sewage fees, that is pro-rated per tenant percentage also.
Full Gross Lease includes Everything, all expenses in one monthly lease payment.

Sep 29, 2010
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Brian J. G.
Broker/Agent
Plainville, MA

A triple net lease means the same as a "net lease". In a net lease, the lessee pays a stipulated rent plus operating expenses of the property, such as taxes, insurance, repairs and maintenance

Sep 30, 2010
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Reggie F.
Broker/Agent
Oak Park, MI

Why guess; exert from Wikipedia: Types of net leases
There are standard names in the commercial real estate industry for different sets of costs passed on to the tenant in a net lease.
Single net lease
In a single net lease (sometimes shortened to Net or N), the lessee or tenant is responsible for paying property taxes as well as the base rent. Double- and triple-net leases are more common forms of net leases because all or the majority of the expenses are passed on the tenant.
Double net lease
In a double net lease (Net-Net or NN) the lessee or tenant is responsible for real estate taxes and building insurance. The lessor or landlord is responsible for any expenses incurred for structural repairs and common area maintenance. "Roof and structure" is sometimes calculated as a reserve, the most common amount is equal to $0.15 per square foot.
Triple net lease
A triple net lease (Net-Net-Net or NNN) is a lease agreement on a property where the tenant or lessee agrees to pay all real estate taxes, building insurance, and maintenance (the three 'Nets') on the property in addition to any normal fees that are expected under the agreement (rent, etc.). In such a lease, the tenant or lessee is responsible for all costs associated with the repair and maintenance of any common area.
This form of lease is most frequently used for commercial freestanding buildings however, it has also been used in single family residential rental real estate properties.
Bondable lease
A bondable lease (also called an absolute triple net lease or a "hell-or-high-water lease") is the most extreme variation of a triple net lease, where the tenant carries every imaginable real estate risk related to the property. Notably, these additional risks include the obligations to rebuild after a casualty, regardless of the adequacy of insurance proceeds, and to pay rent after partial or full condemnation. These leases are not terminable by the tenant, nor are rent abatements permissible. The concept is to make the rent absolutely net under all circumstances, equivalent to the obligations of a bond: hence the "hell-or-high water" moniker. An example of this type of lease would be a leaseback arrangement in which a retailer leases back the building it formerly owned and continues to run the store.
Bondable leases are typically used in so-called "credit tenant lease" deals, where the main driver of value is not so much the real estate, but the uninterrupted cash flow from the usually investment-grade rated "credit" tenant.[citation needed]
Typically, triple net leases (NNN) are 'equity investments', rather than 'cash flow investments'. For example, the investor will finance a significant portion of the purchase price on a property and pay the resulting mortgage with the lessee's monthly owed rent. There is usually a small amount left over as monthly profit for the investor (positive cash flow), but the greater investment payoff comes from the tax shields afforded to the investor through the use of leverage or gearing. The resulting property is then sold after a period of equity-building, usually five years - the typical commercial mortgage term.
Reggie Fluker, Cs.D., M.B.A.
Commercial REALTOR
Direct: (313) 516-8822

Sep 30, 2010
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Brad F.
Broker/Agent
Redlands, CA

A NNN Lease means "everything" (absolutely everything) is paid for by the tenant. That is why sometimes a NNN Lease is called an Absolute Net Lease. But calling a NNN Lease an Absolute Net Lease is incorrect. NO COST PERIOD to the Building Owner, otherwise the lease is NOT Absolute ! The distinguishing difference between a NNN Lease and an Absolute Net Lease is in the Absolute Net Lease the building owner does NOTHING. In a NNN Lease the Tenant is responsible for ALL COSTS, but the building owner still maintains the position of paying some costs, then getting the tenant to reimburse the building owner for these costs. Absolute Net is Hands Off with Tenant paying All Costs. NNN Lease is Tenant paying all costs, but building owner has responsibilities that involve reimbursement.
The only time a tenant would NOT pay for "everything" in a True NNN Lease is in the event there is pro-rata sharing based on multiple tenancy. Therefore a tenant on a NNN Lease might only pay 17% of the taxes, but that would only be because the tenant is only leasing 17% of the space. Multiple tenancy often automatically creates a NNN Lease vs. and Absolute Net Lease because of CAM and pro-rata sharing.
One last example that even some of the best miss when "reading the lease"(if they read it?)! If the building owner is responsible for just the roof and foundation, then this lease is in fact NOT a NNN Lease. The building owner being responsible for these 2 structural items is properly called a NN (double net) Lease.
Freeman & Associates - Professional Real Estate Advisors
877.300.4289
P.S. There are some incorrect statements in the Wikipedia Version below ;)

Sep 30, 2010
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Gregory G.
Broker/Agent
San Francisco, CA

Good explanation here: http://www.gregorygarver.com/nnn1031netleasedinvestments.pdf

Oct 1, 2010
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Donald J.
Broker/Agent
Sanford, FL

The main thing to remember about NET Leases is what is the NET to the owner. Which simply means, if the owner/lessor is willing to accept the lessee at a lower lease net, then the net is a simplier net lease. This means the owner/lessor is not willing to take as much risk with the lessee and will charge the costs of operation to the lessee in the form of actual rent. If the owner/lessor is willing to take a larger risk they will increase the liability of the nets to the lessee. It would seem the opposite is true, however, in truth by allowing someone else to be responsible for paying the insurance, taxes, operating expenses, ecetera, on a building you own, you in fact are taking a higher risk with that tenant. The usual definitions of Net, whether single, double or triple is actually a misnomer and has been classified falsely. The fact is all leases are a NET of some class. Whether the lease be full service (all inclusive), or separate clauses are made for expensing operational costs, each is a net lease to the owner/lessor since the owner will recieve a final compensation, either profit or loss. The reason this is true is because of the factor called debt service, which is not a direct cost to the lessee, but is in the end how the DS gets serviced. A college professor explained it to me this way years ago (my major was real estate). What does this mean, it means that NETS are separate and added as many times as negotiated. There can be a single net or you could have ten. But, for simplicity it is easier to explain it to others the way common definitions are used. If representing a tenant it is advisable to explain to them that Net leases are not always the best route since the usual PSF costs is represented in an attractive manner and the REAL PSF costs are hidden. When broken down the taxes, insurance and operational expenses PLUS the tenants additional tax, insurance and operational expenses increase the overall NET expense to the tenant while increasing the overall profit potential for the owner. In short, there are two sides to the story.
Also, nice presentation Gregory.

Oct 7, 2010
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Frank N.
Broker/Agent
Phoenix, AZ

Nancy:
A triple net lease typically means that each tenant pays its pro rata share of the property taxes, the building's casualty insurance and all operating expenses. We brokers have a bad habit of calling operating expenses common area maintenance or CAMs, property managers will often call all NNN expenses CAMs. Just be aware of that when you are talking to brokers.
Normally the expenses are tallied once a year, divided by the square footage of the building and accessed to the tenants 1/12th being due each month as additional rent. Any deficiets or overages are dealt with at the annual accounting by charging the Tenants an amount to make up deficiets or adjusting the CAM (here I go doing it) charges for the following year.
There may also be, in the case of single tenant properties, occassions where the tenant pays the taxes, insurance and expenses directly as they become due. This is often referred to as an "Absolute Triple Net Lease"
Hope this helps.

Oct 7, 2010
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Marty H.
Broker/Agent
Lenexa, KS

Nancy
A triple net (NNN) lease in my opinion is one where the tenant takes on all responsiblities for the building and all the owner has to do is tell the tenant where to mail the rent check. HOWEVER, you need to make sure that you and the party you are dealing with have the same understanding. I've had people tell me the lease was triple net only to find that the landlord was responsible for the roof and building structure. I've also seen some agents make reference to a NNNN lease which they said was pure net (like my understanding of a NNN Lease).
Within the body of the lease the expense responsiblities will be spelled out. Make sure you read the lease and understand it. Don't rely on someone telling you it is a triple net lease only to find out that your definition of a NNN lease and yours are different.
Marty Hugo
Real Estate Dynamics, Inc.
Mission, KS

Oct 7, 2010
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Gregory G.
Broker/Agent
San Francisco, CA

So this is the correct definition then:
http://www.gregorygarver.com/nnn1031netleasedinvestments.pdf

Oct 10, 2010
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