Triple Net Lease Law and Legal Definition
A triple net lease (also known as "NNN") is a lease in which provision is made for the lessee to pay, in addition to rent, all expenses associated with the property such as property taxes, insurance and maintenance and operation charges. Triple net leases are commonly used in commercial properties, such as shopping malls and apartment buildings.
For example, under a triple net lease of an apartment buiding, a lessee may agree to manage the property, rent the apartments, maintain the building, and pay all costs, including taxes, insurance and mortgage. Basically, the owner becomes a silent partner who is no longer bothered by the responsibilities of being the landlord. In exchange, the lessee agree to pay him an amount almost equal to what his net income from the building currently is.
- A lease is generally triple net if it requires the tenant to pay the following costs:
- Insurance: full liability and property damage insurance
- Maintenance: all repair and preventive maintenance during the life of the lease
- Taxes: all state and local property taxes
Most triple net leases require the lessee or tenant to cover costs to maintain the roofing, heating and air conditioning (HVAC) systems, exterior parking surfaces (typically asphalt), interior and exterior carpet- almost anything related to the building that can wear out or be damaged during the lease period. Some building owners reduce their risk by establishing a reserve fund into which each tenant makes regular payments. The owner then covers property maintenance costs as needed from this fund. A modified net (or modified gross) lease is a variation of the NNN lease in which the tenants pay their own utilities, interior maintenance and repairs, and insurance. The landlord pays everything else, including real estate property taxes.
