What are the differences between single, double and triple net leases?
A net lease is a real estate lease in which the tenant pays, on top of his rent, one or more of the following expenses: property taxes, property insurance premiums or maintenance costs. There exist three basic types of net leases. A single net lease requires the tenant to pay only the property taxes in addition to rent. With a double net lease, the tenant pays the property taxes and insurance premiums. A triple net lease, also known as an NNN or net-net-net lease, requires the tenant to pay rent plus all three additional expenses.
In a traditional lease, the landlord retains the responsibility for paying property taxes, insurance premiums and maintenance costs. He covers these costs by building them into the rent he charges his tenant. For example, if the yearly rent is $10,000 and he estimates the additional costs to be $3,000, the effective rent he charges the tenant is $13,000 annually. While traditional leases are more common than net leases, they present more risk to the landlord, who must absorb any unexpected increases in the extra expenses. For this reason, some landlords prefer to employ a net lease of one kind or another, shifting some or all of this risk to the tenant.
Single Net Leases
Single net leases are the least common type of net lease. Less risk is shifted to the tenant as only the property taxes (and not the insurance premiums and maintenance costs) are his responsibility. Even though the tenant is responsible for paying the taxes in a single net lease, most landlords prefer that the payment pass through them so they know the taxes are paid on time and in the correct amount.
Double Net Leases
Double net leases are especially popular in commercial real estate. The tenant pays property taxes and insurance premiums in addition to rent. All exterior maintenance costs remain the responsibility of the landlord, who pays for them directly. In larger commercial developments, such as shopping malls and expansive office complexes, landlords typically assign taxes and insurance costs to tenants proportionally based on the amount of space leased.
Triple Net Leases
The triple net absolves the landlord of the most risk of any net lease. Even the costs of structural maintenance and repairs must be paid by the tenant in addition to rent, property taxes and insurance premiums. When maintenance costs are higher than expected, tenants under triple net leases frequently attempt to get out of their leases or obtain rent concessions. To preempt this from happening, many landlords prefer to use a bondable net lease, which is a type of triple net lease stipulating it cannot be terminated before its stated expiration date and the rent amount cannot be altered for any reason, including unexpected and significant increases in ancillary costs. (For related reading, see: What kinds of real estate use triple net (NNN) leases?)