Net lease

Net lease


In commercial real estate, a net lease requires the tenant to pay, in addition to rent, some or all of the property expenses which normally would be paid by the property owner (known as the "landlord" or "lessor"). These include expenses such as real estate taxes, insurance, maintenance, repairs, utilities and other items.[1]

The precise items that are to be paid by the tenant are usually specified in a written lease. For properties that are leased by more than one tenant, such as a shopping center, the expenses that are "passed through" to the tenants are usually prorated among the tenants based on the size (square footage) of the area occupied by each tenant. The term "net lease" is distinguished from the term "gross lease". In a net lease, the property owner receives the rent "net" after the expenses that are passed through to tenants are paid. In a gross lease, the property owner receives the "gross" rent from the tenant, which the landlord can use to pay expenses or in any other way as the landlord sees fit.

Types of net leases

There are standard names in the commercial real estate industry for different sets of costs passed on to the tenant in a net lease. Double and triple-net leases are more common forms of net leases.[2]

Single net lease

In a single net lease (sometimes shortened to Net or N), the lessee or tenant is responsible for paying property taxes as well as the base rent.

Double net lease

In a double net lease (Net-Net or NN) the lessee or tenant is responsible for property tax and building insurance. The lessor or landlord is responsible for any expenses incurred for structural repairs and common area maintenance. "Roof and structure" is sometimes calculated as a reserve amount, which the tenant must pay.

Triple net lease

A triple net lease (Net-Net-Net or NNN) is a lease agreement on a property where the tenant or lessee agrees to pay all real estate taxes, building insurance, and maintenance on the property. In such a lease, the tenant or lessee is responsible for all costs associated with the repair and maintenance of any common area. This form of lease is most frequently used for commercial freestanding buildings. However, it has also been used in single family residential rental real estate properties.[3]

Bondable lease

A bondable lease (also called an "absolute triple net lease", "true triple net lease", or a "hell-or-high-water lease") is the most extreme variation of a triple net lease, where the tenant carries every imaginable real estate risk related to the property. Notably, these additional risks include the obligations to rebuild after a casualty, regardless of the adequacy of insurance proceeds, and to pay rent after partial or full condemnation. These leases are not terminable by the tenant, nor is it permissible for rent to be abated under them.

The concept is to make the rent absolutely net under all circumstances, equivalent to the obligations of a bond. An example of this type of lease would be a leaseback arrangement in which a retailer leases back the building it formerly owned and continues to run the operate its business at the location.


Typically, triple net leases (NNN) are 'equity investments', rather than 'cash flow investments'. For example, the investor will finance a significant portion of the purchase price on a property and pay the resulting mortgage with the lessee's monthly owed rent. There is usually a small amount left over as monthly profit for the investor (positive cash flow), but the greater investment payoff comes from the tax shields afforded to the investor through the use of leverage. The resulting property is then sold after a period of building up equity.


  1. ^ Principles and Practices of New Jersey Real Estate 6th Ed by Frank W. Kovats, DREI.
  2. ^ Hipp, Jonathan W. (2008-11-28). "What You Need to Know to Invest in Single-tenant, Net-leased Properties". Calkain Companies, Inc.. 
  3. ^

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