What Is NNN Lease (Triple-Net Lease)?
An NNN lease is a commercial lease structure where the tenant pays base rent plus property taxes, insurance, and maintenance (CAM). You're not on the hook for those operating expenses — they pass through to the tenant. Common in single-tenant retail (CVS, Walgreens, Dollar General). Your NOI is more predictable because the tenant bears the expense risk. But if that tenant leaves, you've got 100% vacancy and you're paying the bills until you find a new one.
An NNN (triple-net) lease is a commercial lease where the tenant pays property taxes, insurance, and maintenance — the three "nets" — in addition to base rent. You collect rent and pass those costs through.
At a Glance
- What it is: A commercial lease where the tenant pays taxes, insurance, and maintenance on top of base rent
- Why it matters: Shifts operating risk to the tenant — your NOI is more stable; cap rates reflect that
- How to use it: Common in single-tenant retail; evaluate tenant credit and lease term length before buying
- Common threshold: NNN cap rates often 5–7% for credit tenants; gross leases run higher (6–9%) because you carry the expense risk
How It Works
The three "nets" are property taxes, insurance, and maintenance (often called CAM — common area maintenance). In a gross lease, you pay all of that. In an NNN, the tenant does. You collect base rent and the tenant reimburses you for — or pays directly — those three expense categories.
Pass-through mechanics. Most NNN leases have a base year. Tenant pays their share of increases over that base. If property taxes go up 8% in year two, the tenant's share goes up. You're not eating that increase. That's why NOI is more predictable — you're not guessing what insurance will cost in year five.
Asset class fit. Single-tenant retail loves NNN. A CVS or Walgreens builds to suit, signs a 15–20 year lease, and pays the nets. You own the box; they run the business. Office can be NNN or modified gross. Multifamily is almost never NNN — tenants expect you to handle taxes, insurance, and maintenance. The 5+ unit commercial real estate world uses gross or modified gross for apartments.
Cap rate impact. NNN properties often trade at lower cap rates (5–6%) than gross-lease properties (6–8%) because the income stream is more predictable. A credit tenant with 12 years left on the lease is a bond-like cash flow. Lower cap = higher price for the same NOI. But that assumes the tenant stays. Vacancy flips the script — you're paying everything with zero rent.
Real-World Example
Dollar General in Memphis, 2024.
You buy a single-tenant NNN retail box for $1.2M. Base rent: $72,000/year ($6,000/month). Tenant pays property taxes ($14,400), insurance ($4,800), and CAM ($3,600) — all pass-through. Your NOI is effectively the base rent minus any landlord responsibilities (minimal). Cap rate: 6%. Cash flow after debt service (75% LTV, 6.5% rate): ~$18,000/year.
Lease term: 10 years remaining, two 5-year options. Dollar General is investment-grade credit. You're betting they stay. If they leave, you've got an empty box in a strip center. Re-tenanting could take 12–24 months. You're paying taxes, insurance, and maintenance the whole time — no rent. That's the trade: predictable income when occupied, full risk when vacant.
Pros & Cons
- Predictable NOI — tenant bears operating expense increases
- Lower management burden — tenant handles maintenance for their space
- Often lower cap rates (higher prices) for credit tenants — institutional buyers like the bond-like cash flow
- Cash flow is more stable than gross-lease properties in the same asset class
- Tax and insurance spikes don't hit your bottom line — they pass through
- Single-tenant = 100% vacancy risk if tenant leaves; re-tenanting can take 12–24 months
- You still pay when vacant — taxes, insurance, and basic maintenance don't stop
- Credit matters: a national chain is different from a local mom-and-pop on a 5-year lease
- Lease term matters: 3 years left is a different bet than 15 years
- Less control over the asset — tenant improvements and use are often locked in
Watch Out
- Tenant credit risk: A local tenant with weak financials can default. You're left with an empty box and a lease guarantee that may not cover much. Vet tenant financials before you buy.
- Lease roll risk: Single-tenant NNN with 2 years left? You're buying a short-dated option. Cap rate might look great, but you're betting on renewal. If they don't renew, your NOI goes to zero.
- Modeling risk: Don't assume expense pass-throughs are automatic. Read the lease. Some NNN leases cap tenant responsibility or have base-year quirks that limit your protection.
- Exit risk: When you sell, the buyer's underwriting the same tenant risk. A credit tenant with 10 years left sells easy. A struggling tenant with 2 years left? Fewer buyers, lower price.
Ask an Investor
The Takeaway
An NNN lease shifts property taxes, insurance, and maintenance to the tenant. You collect base rent and pass through those costs. It's common in single-tenant retail and can deliver predictable NOI and cash flow — but only while the tenant stays. Vacancy means you're paying everything with zero rent. Evaluate tenant credit and lease term before you buy. The cap rate might look attractive; the risk is in the tenant.