Guides
What Is an NNN Lease
Commercial leases fall along a spectrum based on how operating expenses are allocated between landlord and tenant. A gross lease has the landlord paying most or all operating expenses out of the rent collected. A modified gross lease splits certain expenses, often with the tenant covering utilities and janitorial while the landlord covers taxes and insurance. A triple net, or NNN, lease shifts property taxes, insurance, and most maintenance to the tenant, leaving the landlord with the smallest operating role of the three structures. Because the label on a lease does not always match its actual terms, reviewing the specific expense allocation clauses is essential before assuming a property will perform the way a triple net classification suggests.
What You Get
Key Outcomes
A clear comparison of gross, modified gross, and triple net lease structures
A term-by-term review confirming what a specific lease actually requires of the tenant
Identification of any gaps, such as roof or structural exclusions, before you rely on the lease
Deliverables
What We Deliver
- A lease classification summary comparing the subject lease against standard structures
- A clause-by-clause expense allocation review
- A flagged list of any landlord obligations that differ from a standard triple net structure
Process
Execution Timeline
Day 0: Share the lease document for the property you are evaluating
Day 4: Receive a written expense allocation and classification review
Day 8: Discuss any flagged exclusions and how they affect your underwriting
Common Questions
Frequently Asked
How does a triple net lease differ from a gross lease?
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In a gross lease, the landlord typically pays property taxes, insurance, and most maintenance costs out of the rent collected, so the tenant's payment obligation is simpler but the landlord bears more expense variability, particularly as taxes and insurance rise over time. In a triple net lease, the tenant reimburses or directly pays those same categories, giving the landlord more predictable net income that is less exposed to rising operating costs.
What is a modified gross lease and when is it used?
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A modified gross lease sits between a gross and a triple net lease, with the landlord and tenant splitting operating expenses according to terms negotiated in the lease, commonly with the tenant covering utilities and interior maintenance while the landlord retains responsibility for taxes, insurance, and structural items. This structure is common in multi-tenant office buildings where individual tenant usage of utilities and space varies significantly.
Is every lease labeled 'triple net' actually a true NNN lease?
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Not always. Some leases marketed as triple net retain landlord responsibility for the roof or structure, or cap certain tenant expense reimbursements, which changes the landlord's actual exposure compared to a lease with no such carve-outs. Reviewing the specific clauses rather than relying on the label is important, since two properties both described as NNN can have meaningfully different risk profiles for the owner.
How do lease escalations work within a triple net structure?
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Most NNN leases include rent escalations, either fixed annual or periodic percentage increases, or occasionally tied to an index such as the Consumer Price Index. These escalations are separate from the expense reimbursements covered by the triple net structure and directly affect the property's income growth over the lease term, which is a key factor in underwriting the property's long-term value alongside its current cap rate.
What should I ask for before relying on a lease's NNN classification?
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Request the full executed lease, any amendments, and a current rent roll or estoppel certificate confirming the tenant's understanding of its obligations matches the lease terms. Reviewing actual operating expense reimbursements collected in recent years against what the lease specifies can also reveal whether the landlord has been absorbing costs that the lease technically assigns to the tenant, which would affect your true net income going forward.
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