A triple net lease—also known as a net-net-net lease or simply NNN—is a lease agreement in which the tenant agrees to pay the landlord for the expenses related to maintaining the property—in addition to the fees the tenant owes for rent and utilities. Triple net leases are typically used in commercial (nonresidential) leases.
The triple net expenses the tenant usually owes under a triple net lease include:
• real estate or property taxes;
• building insurance; and
• the cost of maintenance or repairs—including structural repairs such as the roof.
If a triple net lease is for commercial space that is part of a shopping center or strip mall in which there are common areas used by multiple tenants, each tenant’s triple net lease may also require the tenant to pay their proportionate share (based on total square footage in the shopping center or strip mall) of the common area expenses such as maintenance of the parking lot, landscaping, maintenance staff, security staff, and maintenance of elevators and escalators.
A tenant who leases under a triple net lease may have a smaller monthly rent payment, but may have significant, unexpected repair or replacement expenses for the roof, heating, ventilation, and air conditioning (HVAC ) systems, or electrical systems. A tenant may want to hire a professional inspector to provide better insight into the risks of significant triple net expenses.
A landlord that leases its property under a triple net lease runs the risk of the tenant deciding it can live with a maintenance issue (that should be promptly repaired or replaced) until the end of the lease to avoid the expense of the repair or replacement.
In addition to putting the expense of such an overdue repair or replacement on the landlord—who probably will be required to make the repair or replacement to attract a new tenant—the neglected problem may have become worse and more expensive to correct than if the tenant had timely undertaken the repair or replacement work.
To safeguard against this problem, a landlord using a triple net lease may want to include the tenant’s obligation to cooperate with scheduled inspections of the property—paid for by the landlord—to timely identify the need for any such repair or replacement work and force the tenant to meet its obligations under the terms of the lease agreement.
In Texas, a triple net lease (NNN) is a common arrangement in commercial real estate where the tenant is responsible for paying property taxes, building insurance, and maintenance costs, in addition to rent and utilities. This type of lease often applies to properties with shared common areas, such as shopping centers, where tenants may also pay a share of the common area maintenance costs. While tenants might benefit from lower monthly rent, they could face substantial expenses for major repairs or replacements. Landlords, on the other hand, risk tenants deferring essential maintenance, potentially leading to more significant issues and costs down the line. To mitigate this, landlords may include clauses in the lease requiring tenant cooperation with property inspections to ensure maintenance obligations are fulfilled. Both tenants and landlords should carefully consider the implications of a triple net lease and may benefit from professional advice to understand the potential risks and responsibilities involved.
