Introduction

In the realm of commercial real estate, net leases have become a prevalent and versatile means of structuring lease agreements between landlords and tenants. These net leases are named according to the extent to which operating expenses are allocated between the two parties. Three common varieties of net leases are single net leases, double net leases, and triple net leases, each with distinct characteristics and implications. In this article, we will explore these three types of net leases and delve into their unique features.

 

Single Net Lease (N Lease):

The single net lease, often referred to as an N lease, represents one of the simpler forms of net lease agreements. In this type of lease, the tenant takes on the responsibility of paying a portion of the property’s property taxes. While landlords usually include property taxes in the lease agreement, the tenant is obligated to reimburse the landlord for their share. Other operating expenses, such as insurance and maintenance costs, remain the landlord’s responsibility under a single net lease.

Key Features of Single Net Lease:

Tenant Pays Property Taxes: The primary responsibility of the tenant in a single net lease is to cover a portion of the property taxes. This allocation provides the landlord with a degree of predictability in their rental income.

Landlord Covers Other Expenses: Landlords typically retain responsibility for insurance premiums, maintenance costs, and common area expenses.

Limited Tenant Obligations: Tenants must factor in the added cost of property taxes, but they have relatively fewer financial and property responsibilities compared to other net lease types.

 

Double Net Lease (NN Lease):

The double net lease, also known as the NN lease, takes a step further in shifting operating expenses from the landlord to the tenant compared to the single net lease. In this arrangement, the tenant assumes the responsibility for property taxes, insurance premiums, and some building maintenance, in addition to their base rent. However, landlords remain responsible for some property maintenance, capital improvements, and common area expenses.

Key Features of Double Net Lease:

Tenant Covers Property Taxes and Insurance: Tenants in a double net lease must pay property taxes and insurance premiums on top of their base rent.

Landlord Maintains Property: Landlords are still responsible for property maintenance and any common area expenses, providing a level of control over the property’s condition.

Higher Tenant Commitment: Double net leases require tenants to factor in the costs of property taxes and insurance, making it a more substantial financial commitment compared to a single net lease.

 

Triple Net Lease (NNN Lease):

The triple net lease, commonly referred to as the NNN lease, represents the most tenant-favorable option among the net lease types. In a triple net lease, the tenant assumes a significant share of the property’s operating expenses. Tenants are responsible for property taxes, insurance, maintenance and repair costs, in addition to their base rent. This type of lease is commonly encountered in single-tenant buildings, freestanding retail properties, and fast-food restaurants.

Key Features of Triple Net Lease:

Tenant Assumes All Operating Expenses: In a triple net lease, the tenant takes on the financial responsibility for property taxes, insurance premiums, property maintenance, and common area costs.

Landlord Enjoys Hands-Off Management: Landlords benefit from a predictable rental income while passing on most property expenses to the tenant. This creates a more passive investment strategy for property owners.

Tenant Bears Ongoing Costs: Tenants must be aware of the substantial financial implications of a triple net lease, as they are responsible for most of the property’s ongoing costs.

Here at Millcreek Commercial, almost all of our properties feature a NNN lease. It’s something we look for when acquiring a property. Our aim is to give you the benefits of commercial real estate investing without any heavy lifting. To take a look at our inventory, click here. Call us today to discuss your investment options 385.248.0613

 

Comparing the Three Net Lease Types

To help you better understand the distinctions between single, double, and triple net leases, let’s delve deeper into a comparative analysis of these three lease types.

Financial Responsibility:

Single Net Lease: Under a single net lease, tenants are responsible for a portion of the property taxes, with the landlord covering other expenses like insurance and maintenance. This type of lease offers a relatively limited financial obligation for tenants.

Double Net Lease: In a double net lease, tenants take on the burden of property taxes and insurance in addition to their base rent, while landlords maintain responsibility for property maintenance and common area expenses. This lease type requires a higher financial commitment from tenants.

Triple Net Lease: Triple net leases are the most comprehensive for tenants, as they are responsible for all property-related expenses, including property taxes, insurance, maintenance, and common area costs. This type of lease places the bulk of the financial obligations on the tenant.

Predictability and Control:

Single Net Lease: Single net leases provide landlords with a degree of predictability in their rental income as tenants cover a specific expense (property taxes). Tenants have limited control over other property-related expenses.

Double Net Lease: Double net leases offer tenants more control over the property as they are responsible for insuring it, along with property taxes. However, they must factor in these added costs on top of their rent payments.

Triple Net Lease: Triple net leases provide landlords with a hands-off approach to property management while offering tenants the most control and responsibility over the property’s expenses. This arrangement can be attractive to investors seeking a more passive investment.

Tenant Commitment:

Single Net Lease: Tenants in a single net lease have relatively fewer financial obligations, making it a less substantial financial commitment compared to the other net lease types.

Double Net Lease: Double net leases require tenants to factor in the costs of property taxes and insurance, making it a more significant financial commitment.

Triple Net Lease: Tenants in triple net leases bear the brunt of the property’s ongoing costs, making it the most substantial financial commitment of the three net lease types.

 

Things to Consider

Landlords and tenants must carefully consider their preferences, financial capabilities, and investment objectives when choosing between single, double, or triple net leases. Here are some key considerations for both parties:

For Landlords:

Risk Tolerance: Landlords should evaluate their risk tolerance and level of involvement in property management. Triple net leases offer a more hands-off approach, while single net leases provide more control for landlords.

Desired Income Predictability: Landlords should consider the predictability of rental income when choosing a net lease type. Single and triple net leases provide a degree of income predictability, while double net leases offer a balance.

Tenant Financial Strength: Evaluate the financial strength of prospective tenants. Triple net leases may be attractive to tenants with strong financials, while single net leases could be suitable for those with limited resources.

For Tenants:

Financial Capacity: Tenants must assess their financial capacity and ability to cover property taxes, insurance premiums, and other operating expenses when choosing a net lease type.

Control Over Property: Consider how much control you want over the property. Triple net leases provide tenants with the most control but also the most financial responsibility.

Long-Term Commitment: Evaluate the length of the lease term and the financial implications over the long term, as net lease types can significantly impact your financial obligations.

 

Conclusion

In conclusion, single, double, and triple net leases offer commercial real estate stakeholders various options for structuring lease agreements. The choice of net lease type should align with the property type, tenant financial strength, and investment objectives. Understanding the distinct features and implications of these net lease varieties is crucial for making well-informed real estate decisions. Whether you are a landlord seeking a more passive investment or a tenant aiming to control property expenses, navigating the world of net leases is key to successful commercial real estate transactions.