What is a triple net lease?
A triple net lease is a commercial lease agreement in which the tenant is responsible for three expenses in addition to rent:
- Building maintenance.
- Property insurance.
- Property tax.
A triple net lease has lower monthly payments
To accommodate the additional expenses, a triple net lease typically has a lower base rent than a standard lease (also known as a gross lease).
Triple net leases are not common in residential real estate. However, they are common in commercial real estate, particularly in multi-unit structures such as strip malls. A triple net lease is also known as an NNN (net, net, net) lease.
Double net and single net leases
In addition to a triple net lease, a commercial renter may encounter a double net lease, in which the tenant is responsible for property tax and property insurance as part of the rental agreement. There is also a single net lease, in which the tenant pays for property tax in addition to the monthly rent payment.
A triple net lease may have hidden costs
A triple net lease is similar to an apartment lease in which the tenant pays less for rent but has to cover expenses such as gas or electricity as well. In both cases, the tenant needs to look at the total cost, not just the monthly rent payments. Although a triple net lease could look like a good deal, the renter might want to reconsider after factoring in the costs of property tax, property insurance, and maintenance.
When considering a commercial property with a triple net lease, the cost of potential repairs is a major determinant. For a newer building, repair and maintenance costs tend to be low, but a tenant moving into an older commercial space could potentially face large expenses. The owner of a rapidly growing business could save money by taking on a short-term triple net lease in a newer building, and then relocating after it outgrows the space – and before any significant repairs arise.
Example: a triple net lease costs less
A triple net lease could be a wise choice. For example, a beautician moves her shop into a strip mall under a triple net lease. Although her landlord is charging fairly low monthly rent payments, the tenant is responsible for paying property tax, property insurance, and the costs of maintaining the area around the shop and repairing the building. The strip mall was built just last year and it maintains a contract with a landscaper that charges reasonable prices, so the beautician feels confident that she is getting a good deal moving into the property.
Example: a triple net lease costs more
However, sometimes a triple net lease is a poor choice. For example, a lawyer is planning on moving his office into an older building under a triple net lease. The monthly payments are low, but the building is in disrepair. He consults with a professional contractor who tells him that the roof will soon need replacing. After balancing the low monthly payments with the cost of a new roof, the lawyer decides that the commercial space will cost him more in the long run, and he decides not to sign the lease.
Insurance requirements for a triple net lease
Triple net leases are common in commercial lease situations – they also often come with specific insurance requirements. The tenant typically must carry general liability insurance and property insurance at a minimum. A small business with a low risk profile may be eligible for a business owner’s policy, which bundles these two types of insurance together at a discounted rate.
Talk to an expert about a triple net lease
Insureon’s commercial insurance agents are familiar with triple net leases and how they could benefit your business. Apply online for free business insurance quotes from Insureon’s network of top-rated U.S. carriers. Our insurance specialists are licensed in every state and can help your business find affordable protection for the risks it faces.
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