Triple Net vs. Absolute Net Lease

What the three nets cover

NNN refers to property taxes, insurance and maintenance or operating expenses in addition to base rent. Some costs are paid directly by the tenant; others are paid by the landlord and reimbursed. That payment mechanism is separate from whether an expense is ultimately recoverable. Ask for both the lease's expense definitions and recent operating records.

Compare obligations clause by clause

Use this checklist to compare two properties consistently. Record the party responsible, any cap or exception, and the exact lease section. Avoid reducing a complex lease to a single yes/no field.

Does an NNN landlord pay for the roof?

Sometimes. A lease can leave roof or structural obligations with the landlord even if the listing calls it NNN. Another lease can allocate those costs to the tenant. Distinguish repair from replacement and inspect exceptions, dollar thresholds and warranty provisions. Holland & Knight's lease guidance specifically cautions that structural defects and capital expenditures can remain landlord obligations.

Calculate income after landlord expenses

Consider an illustrative property with $150,000 annual rent and $12,000 of recurring owner expenses that cannot be recovered. Its NOI would be $138,000 before financing and income tax, assuming no other operating income or expenses. At a $2.5 million price, that is a 5.52% cap rate, not the 6% implied by dividing rent alone by price. This is an arithmetic example, not a market yield estimate. Model major capital work separately from recurring NOI.

Absolute net does not remove every investment risk

Even a broad tenant obligation depends on performance and enforceability. If the tenant defaults, you may face collection costs, vacancy, maintenance and releasing work. Long firm terms and rent increases also do not eliminate location risk or the possibility that contractual rent exceeds the market. Check the entity that owes rent and any guaranty separately from the lease expense terms.

Questions to ask before comparing offers

Ask the listing contact for the executed lease and all amendments, the responsibility schedule, recent expense history and known deferred maintenance. Have counsel reconcile the marketing description with the operative clauses. Use an engineer or inspector to estimate physical work and an adviser to model the cost rather than treating a broad covenant as proof of property condition.

Sources and related research

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