What is a 'Triple Net Lease'

A triple net lease is a lease agreement that designates the lessee, which is the tenant, as being solely responsible for all the costs relating to the asset being leased, in addition to the rent fee applied under the lease. The structure of this type of lease requires the lessee to pay the net amount for three types of costs, including net real estate taxes on the leased asset, net building insurance and net common area maintenance. This type of lease can also be referred to as a net-net-net (NNN) lease.

BREAKING DOWN 'Triple Net Lease'

For example, if a property owner leases out a building to a business using a triple net lease, the tenant is responsible for paying the building's property taxes, building insurance and the cost of any maintenance or repairs the building may require during the term of the lease. Because the tenant is covering these costs, which would otherwise be the responsibility of the property owner, the rent charged in the triple net lease is generally lower than the rent charged in a standard lease agreement. The capitalization rate, which is used to calculate the lease amount, is determined by the credit worthiness of the tenant.

Triple Net Lease Investing

Triple net leased properties have become popular investment vehicles for investors seeking steady income with relatively low risk. Triple net lease investments are typically offered as a portfolio of properties consisting of three or more high-grade commercial properties that are fully leased by a single tenant with existing in-place cash flow. The commercial properties could include office buildings, shopping malls, industrial parks, or free-standing buildings operated by banks or restaurant chains. The typical lease term is for 10 to 15 years, with built in contractual rent escalation.

The benefits for investors include long-term, stable income with the possibility of capital appreciation of the underlying property. Investors can invest in high-quality real estate without concern for management operations, including vacancy factors, tenant improvement costs or leasing fees. When the underlying properties are sold, investors can roll their capital into another triple net lease investment without paying taxes, through a 1031 tax-deferred exchange.

Investors in triple net lease investment offerings must be accredited, requiring at least $1 million net worth, excluding the value of their primary residence, or $200,000 of income ($300,000 for joint filers). Smaller investors may participate in triple net lease real estate by investing in real estate investment trusts (REITs) that focus on such properties in their portfolios.

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RELATED FAQS
  1. What kinds of real estate transactions use triple net (NNN) leases?

    Learn how a net-net-net or triple net lease works and why it is popular in commercial real estate transactions. It is also ... Read Answer >>
  2. What are the differences between single, double and triple-net leases?

    Learn the ins and outs of net lease agreements, including the key differences between single net, double net and triple net ... Read Answer >>
  3. Why might a bond agreement limit the amount of assets that the firm can lease?

    Bond covenants can limit the amount of leases a company can have because leasing contracts are a form of debt. Taking on ... Read Answer >>
  4. How does the value of the real estate impact the value of a triple net (NNN) lease?

    Understand how the value of the real estate involved in a triple-net lease impacts the value of the lease both positively ... Read Answer >>
  5. What are the three "nets" of an NNN lease?

    Learn what the three "nets" are in an NNN lease and how they affect the responsibilities of both landlord and tenant in a ... Read Answer >>
  6. At the beginning of the year, ABC Corp. began to lease a major piece of equipment ...

    The correct answer is: A) Under the capitalized lease method, the lessee must treat the asset as if it was purchased with ... Read Answer >>
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