Triple Net Lease

The triple net lease is a hallmark of commercial real estate investment, particularly for single-tenant properties such as pharmacies, fast-food restaurants, convenience stores, and dollar stores. In a true NNN structure, the landlord's primary obligation is to collect rent; nearly all operating costs, risk, and management responsibility shift to the tenant.

The three nets refer specifically to real estate taxes, property insurance, and maintenance (including roof, structure, and systems in a full NNN lease). Some leases described as NNN in practice are actually net or double-net (NN) leases, where the landlord retains responsibility for structural repairs or the roof. Investors should scrutinize lease documents carefully rather than relying on labeling.

From an investor's perspective, NNN properties offer a relatively passive income stream. There is no property management burden, no uncertainty about operating expense recoveries, and no risk of expense overruns reducing net income. The income is predictable, often with contractual rent escalators built in over the lease term, making valuation straightforward using the cap rate applied to the base rent.

The tradeoff is that NNN cap rates tend to be lower — meaning higher prices relative to income — because of the perceived safety and passivity of the investment. Investors pay a premium for the simplicity. They also accept credit risk: the value of a NNN property is almost entirely a function of the tenant's ability to continue paying rent. A lease with an investment-grade tenant such as a national pharmacy chain is worth far more than an identical building leased to a regional operator with limited financial disclosures.

Lease term remaining is another critical variable. As the lease expiration approaches, value shifts from the going-concern tenant income to the residual or dark value of the real estate alone, which may be significantly lower, particularly for properties built to a single tenant's specifications.