What Does the Landlord Pay for in a Triple Net Lease?

Jan 6, 2022 | Blog, Triple Net - NNN or Net Net Net

A triple net lease (NNN) property is an investment in which the landlord has very few, if any, costs or responsibilities associated with owning and leasing the property. The NNN tenant agrees to a long-term lease that requires paying the “net” amount for three types of costs. These include:

  1. Net real estate taxes on the leased asset
  2. Net building insurance
  3. Net common area maintenance (CAM) charges, which can also include operational expenses.

So, what does a landlord actually pay for with a leased triple net property?

A man's hand holding a pen, looking over a lease agreement

Operating Expenses as Defined in a Lease

In a traditional gross lease or modified gross lease, there are many different operating expenses that need to be clearly defined and paid for by either the landlord or the tenant as outlined in the terms of the lease. These expenses can include things like repaving parking lots, upgrading outdoor lighting, installing a new HVAC unit, and improving the landscaping.

By contrast, in an absolute triple net lease, the lease will state that the landlord does not pay any operational expenses or capital expenditures during the lease term. Since the tenant benefits from the ongoing care of common areas and regular building maintenance for 10–20 years, the company pays them outright as explained in the triple net lease. That means all CAM and additional operational costs are the tenant’s responsibility.

CAM examples include:

  • Sewer, plumbing, electrical repairs, and maintenance
  • Parking lot striping, repair, refurbishment, lighting
  • Snow removal
  • Landscaping
  • Trash removal
  • Janitorial and pest control services
  • Security systems/personnel
  • Liability insurance
  • Insurance and deductibles
  • Real estate taxes
  • Center signage
  • Common area utilities
  • Common area HVAC maintenance
  • Leased items for the building
  • Legal fees associated with the property
  • Landlord’s administrative/property manager costs
  • Capital expenditures; i.e.: new HVAC/heating system, roofing, windows

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Absolute Triple Net Lease Landlord Responsibilities

As an “absolute triple net lease” investor and landlord, you do nothing but collect rent from a major corporation, while the tenant takes care of everything. Most investment-grade corporations, such as Dollar General, Walgreens, and 7-Eleven, want brand uniformity, so they choose to operate with this type of lease, which completely absolves the landlord from any financial or physical responsibility whatsoever.

It is important to note, certain corporations operate with what’s often considered a “modified NNN” or a double net (NN) lease. Starbucks, for example, holds the landlord responsible for the roof, structure, and parking lot. If a purchase contract is signed, we perform due diligence to learn how likely these responsibilities are to create expenses and landlord headaches. Often, they are of no issue.

Watch for Hidden Lease Clauses that Can Turn an Absolute Triple Net into Something Else

As you move forward with commercial real estate investing, watch for lease clauses with hidden responsibilities. A lease may appear to be an absolute triple net lease, but upon further examination, you may find creatively-worded clauses that take away the freedom of zero responsibility.

When reviewing a lease, it’s wise to involve an expert, such as Westwood Net Lease Advisors. A reputable buyer’s advisor is very important in the process. He or she will thoroughly evaluate the lease, find any language that adds landlord responsibility, and ensure your best interests are represented.

Real estate broker agent and customer shaking hands after signing contract documents for realty purchase, Bank employees congratulate, Concept mortgage loan approval

To Wrap It Up – Triple Net Investing Offers Zero Landlord Responsibilities

As you can see, there are few, if any, landlord expenses when it comes to owning a triple net property. Absolute NNN investing offers zero landlord responsibility, while other triple nets may include minor ownership responsibilities like roof, structure, and parking lot. Most corporations operate with triple nets, so the leases are generally pre-set and pretty straightforward, offering a carefree landlord lifestyle and guaranteed income.

Westwood Logo in blue/goldWhen you decide to invest, partnering with a trusted, experienced buyer’s advisor from Westwood Net Lease Advisors will make for a smooth process, from before the property search through closing, and alleviate the unknowns as we advocate for you to get you the most passive, transparent triple net investment for your goals – all at no cost to you. For more information, contact us today for a no-obligation conversation, 314-997-5227.


 

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