A triple net lease (NNN) is a commercial lease structure in which the tenant pays base rent plus three additional cost categories: property taxes, building insurance, and maintenance expenses. The tenant effectively takes on the obligations a typical property owner would carry, leaving the landlord with a passive investment that generates predictable net rent with minimal operational responsibility.
NNN leases are the dominant structure for freestanding single-tenant retail (fast food, pharmacies, dollar stores), for institutional industrial properties, and for many ground leases. Multi-tenant buildings sometimes use modified NNN structures where the tenant pays its pro-rata share of the three categories rather than the full amount.
The distinction between standard NNN and absolute NNN matters in negotiation. In a standard NNN, the tenant pays taxes, insurance, and maintenance, but the landlord typically remains responsible for roof and structure (the building envelope and the load-bearing elements).
In an absolute NNN (sometimes called a bondable NNN), the tenant takes on everything, including roof and structure, environmental remediation, capital replacements, and even casualty risk. Absolute NNN structures are common in sale-leaseback transactions where the operating company wants to monetize the real estate while retaining total control.
The difference materially affects how the investment is underwritten, how it's priced, and what the landlord's ongoing obligations look like.
Institutional investors treat high-quality NNN leases as bond-like instruments. A well-located property with a 15-year NNN lease to an investment-grade tenant generates rent that is predictable, escalates on a schedule defined in the lease, and carries minimal management complexity; the tenant handles almost everything, and the landlord collects the check.
Cap rates on these assets are consequently low, often comparable to corporate bond yields from the same credit quality. The tenant's credit rating is the primary value driver: an NNN lease to a AAA-rated corporation trades at materially lower cap rates than an identical lease to an unrated franchisee, because the credit risk is fundamentally different even though the physical property is identical.
The risks in NNN investing cluster around credit, term, and renewal. Credit risk is obvious: if the tenant fails, the landlord inherits a vacant special-purpose building that may be difficult to re-tenant at similar economics.
Term risk is the approach of lease expiration; a 10-year NNN lease with one year remaining is a very different investment from the same lease at origination, because the landlord suddenly faces leasing risk, broker commissions, tenant improvement allowances, and possible downtime. Renewal negotiations often see the tenant demand rent reductions, TI allowances, or structural improvements that the absolute NNN format had previously assigned to them.
Sophisticated NNN investors track lease term carefully across their portfolios and begin renewal planning years before expiration.
In a triple net lease the tenant pays base rent and then covers the property's three main operating cost categories on top: property taxes, building insurance, and maintenance. In a single-tenant building the tenant typically pays these directly; in a multi-tenant building it pays a pro-rata share, often billed as common area maintenance. The landlord is left with a rent stream that is close to net of operating costs.
NNN sits at one end of a spectrum. A gross lease is the opposite: the tenant pays one all-in rent and the landlord absorbs taxes, insurance, and operating costs out of it. Modified gross sits in between and is common in office, where the tenant typically pays increases over a base-year expense stop while the landlord carries the base. Because these labels are used loosely, the actual cost allocation is whatever the lease defines, not what the name implies.
Within NNN, how far the obligations reach still varies. Under a standard NNN, the tenant pays taxes, insurance, and maintenance, but the landlord usually keeps responsibility for the roof and structure, the parts most expensive to replace. That leaves the owner with some capital exposure even on a net deal.
An absolute or bondable NNN goes further, shifting essentially everything to the tenant, including roof and structure, capital replacements, environmental issues, and even casualty and condemnation risk. These structures are common in sale-leasebacks, where an operating company sells its real estate but wants to keep total operational control. The reach of the lease materially changes how the asset is priced and what, if anything, the landlord has to manage.
A well-located building on a long NNN lease to an investment-grade tenant produces rent that is predictable, escalates on a set schedule, and requires almost no management, so investors treat it much like a corporate bond. Pricing keys off the tenant's credit rather than the bricks: an identical building leased to a top-rated corporation commands a materially lower cap rate than one leased to an unrated operator.
The risks cluster around credit, term, and renewal. If the tenant fails, the owner can inherit a vacant special-purpose building that is hard to backfill. As the lease runs down, term risk rises: a long NNN with a year left is really a leasing play, exposing the owner to downtime, commissions, and tenant improvement costs. Renewal is where a tenant that carried every cost may push for rent cuts or landlord-funded work, so NNN investors track remaining term across the portfolio and plan renewals early.
A triple net lease is a commercial lease in which the tenant pays base rent plus the property's three main operating cost categories: property taxes, building insurance, and maintenance. The tenant takes on obligations an owner would normally carry, leaving the landlord a largely passive, net rent.
The three nets are property taxes, building insurance, and maintenance. In a single-tenant building the tenant usually pays these directly; in a multi-tenant building it pays a pro-rata share, frequently billed as common area maintenance (CAM) alongside base rent.
Under a gross lease the tenant pays one all-in rent and the landlord absorbs operating costs. Under a triple net lease the tenant pays base rent plus taxes, insurance, and maintenance directly. Modified gross sits in between, with the tenant typically paying increases over a base-year stop while the landlord carries the base.
Under a standard NNN the tenant pays taxes, insurance, and maintenance, but the landlord usually stays responsible for roof and structure. Under an absolute (bondable) NNN the tenant takes on essentially everything, including roof, structure, capital replacements, and casualty risk. Absolute NNN is common in sale-leaseback deals.
A long NNN lease to a strong-credit, single tenant produces predictable rent that escalates on a set schedule and needs almost no management, so it behaves much like a corporate bond. Pricing keys off the tenant's credit rating, and the highest-credit tenants command the lowest cap rates.
The main risks are tenant credit, remaining lease term, and renewal. A tenant failure can leave a vacant special-purpose building; a short remaining term turns the deal into a leasing play with downtime and re-tenanting cost; and at renewal a tenant that paid every cost may demand rent cuts or landlord-funded improvements.