Single Net Lease
A commercial real estate lease where, in addition to rent, the tenant is required to pay property taxes. A single net lease is the first level of a pass through lease where taxes associated with the property are the responsibility of the tenant rather of the landlord. The property owner is responsible for the other operating expenses incurred of the property.
Double-Net Lease (NN)
A double net lease is where the tenant is responsible, in addition to rent, to pay both property taxes as well as insurance premiums for the property. Unlike a single net lease, which only requires the tenant to pay property taxes, a double net lease passes more expenses along in the form of insurance payments. As in a single net lease, the landlord is still responsible for property maintenance expenses.
Triple Net Lease (NNN)
In a triple net lease property, the tenant agrees to responsibility for payment of all the expenses involved in operating the property. 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. These expenses include all fixed and variable expenses, as well as any common area maintenance (CAM) fees. Properties with a NNN lease in place are obviously quite attractive since it leaves investors free of any ongoing responsibilities for the property.
Absolute NNN Lease
Some NNN leases are extremely favorable to property owners. Absolute leases require the tenant to pay for all expenses as well as every possible commercial real estate risk. For example, the absolute NNN lease would require the tenant to pay for rebuilding the construction in case of a hurricane or to pay rent even after a building has been declared inhabitable and is scheduled for demolition. This type of lease is relatively rare, and because of the extremely low investment risk, offers the lowest return.
Modified Net Lease
It isn’t uncommon to have modified net leases, under which tenants may have typical responsibilities of a NNN with the exclusion of specific structural repairs, exterior maintenance and repairs, etc. The most common modified NNN leases, require the owner is responsible only for structural repairs, roof repairs, or replacement of larger equipment such as an HVAC system, though this is typically only associated with brand new buildings.