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.

RELATED TERMS
  1. Capitalized Lease Method

    An accounting approach that identifies a company's lease obligation ...
  2. Gross Lease

    A type of commercial lease where the landlord pays for the building's ...
  3. Net Lease

    A provision that requires the tenant to pay a portion or all ...
  4. Closed-End Lease

    A rental agreement that puts no obligation on the lessee (the ...
  5. Operating Lease

    A contract that allows for the use of an asset, but does not ...
  6. Walk-Away Lease

    A common type of car lease in which the lessee returns the car ...
Related Articles
  1. Investing

    How Does an Operating Lease Work?

    Operating lease is a term used mostly in accounting to denote a lease that gives the lessee rights to use and operate an asset without ownership.
  2. Managing Wealth

    What is a Capital Lease?

    A lease considered to have the economic characteristics of asset ownership.
  3. Investing

    How Does a Modified Gross Lease Work?

    A modified gross lease is a rental agreement where, in addition to their rent, tenants pay a share of other costs associated with the property.
  4. Personal Finance

    What Are the Costs of Leasing Vs. Buying a Car?

    The cost difference between buying versus leasing a vehicle can be tens of thousands of dollars over a lifetime
  5. Personal Finance

    Is There a Way to Get Out of Your Car Lease Early?

    For those who no longer want their car for whatever reason, transferring the lease to an interested party can be a particularly appealing choice.
  6. Personal Finance

    When Is Buying A Car Better Than Leasing?

    People who lease a car are often more concerned with the short-term picture.
  7. Managing Wealth

    Millennials Guide: How To Read a Lease

    Everything you need to know before you rent a home.
  8. Investing

    Buying a House with Tenants: A Quick Guide

    Before buying a house with tenants, know the risks and responsibilities you're taking on.
  9. Investing

    How Does a Lease Work?

    A lease is an agreement between two parties where the lessor owns property that it allows the lessee to use pursuant to terms of the agreement.
  10. Investing

    8 Lease Clauses You Need To Know

    If you're renting an apartment this year, beware of signing contracts with these tricky clauses.
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. 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 >>
  5. You are currently reviewing the following information for JKL Corp ...

    Free info on financial certification exams including study guides, exam questions, and much more! Read Answer >>
Hot Definitions
  1. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  2. Portfolio Investment

    A holding of an asset in a portfolio. A portfolio investment is made with the expectation of earning a return on it. This ...
  3. Treynor Ratio

    A ratio developed by Jack Treynor that measures returns earned in excess of that which could have been earned on a riskless ...
  4. Buyback

    The repurchase of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. Companies ...
  5. Tax Refund

    A tax refund is a refund on taxes paid to an individual or household when the actual tax liability is less than the amount ...
  6. Gross Domestic Product - GDP

    The monetary value of all the finished goods and services produced within a country's borders in a specific time period, ...
Trading Center