What is a Net Lease?
Before you can understand what a Net Lease Property is you first need to understand what a Net Lease is. There are two primary lease types that deal with rent and expenses: “Gross Leases” (also called “Full Service”) and “Net Leases”. A Gross Lease is a lease type wherein the landlord pays all of the property expenses and the tenant only makes a rental payment. A Net Lease on the other hand, is a lease with a tenant where, in addition to rent, the tenant is responsible for paying some or all of the property expenses.
Net Lease Broken Down:
Net Leases can be further broken down into Single Net Leases, Double Net Leases (also called Net Net or NN) and Triple Net Leases (also called Net Net Net, NNN or Absolute Net). Each “Net” or “N” represents an additional expense the tenant is responsible for paying.
Single Net Lease (Net or N Lease): the tenant is responsible for paying the PROPERTY TAX expense of the property. The tenant may pay this expense directly or the landlord may pay the expense and the tenant reimburses the landlord for all or a portion of the expense (should be defined in the lease).
Double Net Lease (Net Net or NN Lease): in addition to property taxes the tenant is also responsible for the INSURANCE expense of the property. Double Net Leases tend to be the “catch all” for net leased property that isn’t classified as a Single Net Lease or Triple Net Lease. In other words, if the tenant is responsible for paying property taxes, insurance and some other property expenses but not all property expenses then this should be classified as a Double Net Lease type.
Triple Net Lease (Net Net Net, NNN or Absolute Net Lease): the tenant is responsible for all property related expenses including the building structure, roof and foundation. Triple Net Leases are the crown jewel of real estate investment property as these lease types are essentially “hassle-free”.
A lot of real estate investment property is advertised as having Triple Net (NNN) Leases but when you dig into the leases you’ll see they actually are Double Net (NN) Leases. Double Net Leases aren’t bad, a buyer just needs to be aware of the potential expenses they’ll incur and plan accordingly.
For additional information about Net Leases, please visit the Overview of NNN Investments page.