Guide · Lease structures

Triple net leases, and what the tenant actually pays

A landlord's explanation of NNN, with a worked comparison against a gross deal. Updated July 2026.

Triple net is the most commonly used and most commonly misunderstood structure in commercial real estate. Owners hear it and picture a building that costs them nothing. Tenants hear it and picture a low rent number. Both are working from a version of the term that is not quite what the lease says.

The three nets

Base rent is what the tenant pays for the right to occupy. The nets are three categories of building cost that get passed through on top of it.

• Property taxes. The tenant pays their share of the tax bill.
• Building insurance. The tenant pays their share of the property insurance premium, separate from their own liability and contents coverage.
• Common area maintenance. The tenant pays their share of running the shared parts of the property, which is the largest and most negotiated of the three.

One net is usually taxes. Double net is taxes and insurance. Triple net is all three. The tenant pays base rent plus their pro rata share of all three categories, normally billed monthly as an estimate and reconciled once a year.

Where NNN sits among the other structures

Modified gross is worth understanding because it is common in office. The tenant pays a single number in year one, and from year two forward pays only the increase over that first year's expense level. Your exposure is capped at the base year, but you carry it for the whole term, and if year one happened to be an unusually cheap year you carry more than you meant to.

What triple net does not cover

This is the part owners get wrong. In a standard NNN lease you are still on the hook for:

• Roof and structure. Foundation, load bearing walls, and usually the roof membrane stay with the landlord unless the lease very clearly says otherwise.
• Capital replacements. A new HVAC unit or a repaved lot is normally amortized into the pool over its useful life, not billed to tenants in a single year.
• Vacancy. Nobody pays the share attached to empty space except you, which is exactly why a gross-up clause matters.
• Anything the lease carves out. A well represented tenant will negotiate exclusions and caps. Those survive the words "triple net" sitting at the top of the page.

The same space, both ways

A 10,000 square foot suite. Operating costs run $6.50 a square foot, so $65,000 a year.

In year one the gross deal is worth slightly more. Landlords who compare only the headline rate would look at $18 against $25 and assume the gross deal is dramatically better, and landlords who assume NNN is always superior would assume the opposite. Both are wrong, because the structures are not comparable until you put the expenses back in.

What actually separates them is what happens in year four.

Why the NNN number is more durable

Say operating costs rise 6 percent a year. By year four they are close to $77,000.

Under the NNN lease, your tenants absorb that. Your $180,000 is still $180,000, and your base rent has been escalating on top of it. Under the gross lease you are still collecting $250,000 while paying $77,000, so your net has drifted down to $173,000 and it keeps going.

That is the real argument for triple net. It is not that you collect more on day one. It is that inflation in operating costs stops being your problem, and a rent stream that does not erode is worth more to a buyer and to a lender than one that does.

What to hold on to when you negotiate

Tenants and their brokers will try to soften NNN in a handful of predictable ways. The ones worth defending:

• Do not cap the whole pool. If a cap is unavoidable, apply it only to controllable expenses. Taxes, insurance and utilities are not things you control, and a cap that includes them transfers a risk you cannot manage.
• Keep the administrative fee. It is payment for administering the recovery, and it is legitimate property income.
• Keep the gross-up clause. Without it you fund the vacancy share of every variable cost yourself.
• Keep capital amortization in. Losing the ability to amortize a roof or a parking lot over its life turns a recoverable cost into a permanent one.
• Watch a cumulative cap. A 5 percent annual cap that does not compound is very different from one that does, over a ten year term.

What it means for your NOI and your sale price

On a true triple net property your net operating income barely moves when expenses move, because the tenants are paying them. That has a consequence people miss: growing NOI on an NNN property is almost entirely a leasing question, not an operations question. You grow it by rolling space to higher rent, not by running the building more cheaply.

It also means your expiration schedule matters more than anything else on your rent roll. A building fully leased on NNN with eight years of weighted average term remaining and a building fully leased on NNN with fourteen months remaining will not trade at the same cap rate, and they should not.