Net Lease: Definition and Types — Single, Double, Triple
Key takeaways
- A net lease requires the tenant to pay rent plus some or all property expenses (taxes, insurance, maintenance).
- Net leases are common in commercial real estate and reduce a landlord’s operating responsibilities.
- Types of net leases: single (one expense), double (two expenses), and triple (all three expenses).
- Lease details vary by contract; a modified gross lease can overlap with single or double net structures.
What is a net lease?
A net lease is a lease agreement in which the tenant pays the base rent and also assumes responsibility for one or more property operating costs—typically property taxes, insurance, and maintenance. This shifts day-to-day cost and administrative burdens from the landlord to the tenant. Net leases are most common in commercial real estate.
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Net leases contrast with gross leases, where the tenant pays a single rent amount and the landlord covers operating costs. Landlords usually accept lower base rent under net leases because tenants take on additional expense risk.
How net leases work
- The lease specifies which expense categories the tenant will pay (taxes, insurance, maintenance/repairs).
- Tenants must weigh the rent discount against variable and potentially rising property costs.
- Owners benefit from steadier, lower administrative involvement and more predictable net income (aside from tenant default risk).
Types of net leases
- Single net lease (N): Tenant pays base rent plus one expense—usually property taxes.
- Double net lease (NN): Tenant pays base rent plus two expenses—typically taxes and insurance.
- Triple net lease (NNN): Tenant pays base rent plus taxes, insurance, and maintenance/repairs. Triple net leases are often used for whole-building leases with a single long-term tenant (commonly 10+ years).
Practical considerations
- Definitions and responsibilities can vary by jurisdiction and by contract—always review lease language carefully.
- A modified gross lease can function like a single or double net lease if it assigns specific costs to the tenant.
- From the tenant’s perspective, the rent reduction must adequately compensate for the uncertainty of future operating costs.
- From the landlord’s perspective, net leases transfer operational risk and reduce involvement in property management.
Conclusion
Net leases allocate property operating costs between landlord and tenant in different ways, providing flexibility for investors and occupiers. The precise obligations depend on the lease terms, so clear contractual definitions and careful cost projections are essential for both parties.