Do you own a commercial asset and want consistent income without day-to-day property responsibilities?
A commercial net lease can reduce your involvement while still allowing you to generate steady returns.
In this blog, we’re explaining what a commercial net lease in realty means so that you can decide whether it fits your investment strategy.
More specifically, we’re zooming in on why a triple net commercial lease — which is the most hands-off type of net lease — could be worth a closer look.
What is a commercial net lease?
Simply put, the tenant pays for some or all of a property’s operating costs in a commercial net lease.
You can choose from several structures depending on (1) how much responsibility you want to retain as a landlord and (2) what your tenant is prepared to manage. Each one divides the financial and operational load differently.
1. Single Net Lease
Under a single net lease, you still cover most of the property’s operating costs.
Your tenant pays base rent plus property taxes, but you’re still responsible for insurance, maintenance, and utilities.
It’s rare in commercial properties but might come into play in special cases or short-term agreements.
2. Double Net Lease
In a double net lease, the tenant property taxes and building insurance, while you still handle structural repairs and upkeep.
These leases are common in multi-tenant properties where landlords want to stay in control of key maintenance while reducing their overhead.
You’ll still be involved operationally, but insurance and tax fluctuations won’t affect your bottom line.
3. Triple Net Lease
A triple net lease passes nearly all financial responsibility to the tenant, including taxes, insurance, and maintenance.
You collect rent while they manage the property’s operating costs and upkeep. An absolute net lease (true NNN lease) is the most hands-off lease you can sign.
Your tenant covers everything while you collect base rent and hold title. We’re going deeper into this topic in the next section.
What is triple net on a commercial lease?
The defining feature of a commercial triple net lease is that your tenant pays 3 critical expense categories directly.
1. Property taxes:
The tenant covers all real estate taxes on the property either by paying the city directly or reimbursing you.
This is why you need to make sure that your contract requires them to keep payments current (because unpaid taxes can still trigger liens against your property).
2. Insurance:
Your tenant must secure building insurance and name you on the policy.
You’re not managing the insurance anymore, but you still need to check that coverage meets the lease requirements and protects your interest as the property owner.
3. Maintenance:
Your tenant takes care of everything from landscaping and janitorial work to roof repair and HVAC upkeep.
That can drastically reduce your time involvement, but of course, it also means that you’re relying on them to protect your property.
Make sure that the lease clearly defines maintenance standards and inspection rights.
Triple net commercial leases usually go to corporate tenants or government agencies with long-term occupancy plans.
You essentially retain ownership of the property, but the tenant absorbs most of the costs that typically come with it.
In return, you offer a lower base rent. This is a sensible trade for landlords who want predictable returns and fewer unexpected expenses.
Commercial gross lease vs. triple net
A commercial gross lease is the opposite of a triple net lease. You (the landlord) will cover nearly all the property’s operating expenses.
This often means that you can collect a higher base rent, but from that rent, you also pay for property taxes, insurance, maintenance, etc.
What are the advantages of commercial triple net leases?
- Because your tenant covers nearly all variable costs, you collect stable and consistent rent. You don’t need to worry about sudden insurance increases or property tax spikes eating into your income.
- You won’t be fielding maintenance calls or reviewing utility bills. Most of the operational workload is passed on to the tenant, so you spend less time managing the property (which can be especially useful if you own multiple assets or prefer a passive investment model).
- Triple net leases typically come with longer lease terms, which translates to less tenant turnover and lower leasing costs over time.
Are there any disadvantages to commercial triple net leases?
- You don’t have to manage daily maintenance in a triple net lease, but that also means that you’re trusting your tenant to take proper care of your building. They are effectively acting as property managers, so if they cut corners or delay repairs, your property can lose value. Be sure to build clear maintenance clauses and inspection rights into the lease to stay protected.
- Everything from tax payments to insurance coverage could fall apart fast if your tenant runs into financial trouble. You’re still the property owner, so you’ll have to step back in if they default on obligations or neglect upkeep. This is why it’s essential to choose a creditworthy and financially sound tenant to begin with.
- Most triple net leases run long (10 to 20 years in many cases). You are committing to one tenant for that extended period, so you can’t terminate the lease or reposition the property to match rising market rates if market conditions change.
What should you consider financially before signing a triple-net lease?
Triple net leases can lock in a steady and reliable income for your portfolio, but only if you’ve done the math and tested the assumptions.
Here’s what to scrutinize before you commit:
- Look at the property like a buyer would. Be objective and ask yourself: Would another investor buy this building tomorrow with this tenant in place? Does it have a strong location and a creditworthy tenant? Is the building type one that holds demand in your market? In CRE, these are the factors that drive resale value. Is the location weak or are the tenant’s finances unstable? Then expect trouble when it comes time to refinance or sell.
- Write the lease so it’s clear that the tenant must carry property and liability insurance, send you proof, and list you as an additional insured. Also give yourself the right to step in if they let coverage lapse. After all, you’re the one at risk if coverage falls short even though the tenant pays the premiums.
- Every line on the lease should protect your cash flow. Define who pays for what without room for argument. Lock in rent increases (annual bumps, CPI ties, or both). Spell out default remedies. Have a counsel write terms tailored to your property and tenant.
- Weigh the stability against the lock-in. A 10- or 20-year lease can give you reliable checks but leaves you no room to re-set rent if the market spikes. Decide which matters more before you sign. If you want that stability, protect yourself with built-in escalations. If you want flexibility, maybe a shorter term or different structure is better.
Do you need funding for a triple-net lease opportunity?
Here at Private Capital Investors, we help landlords like you secure the right financing, whether you’re refinancing an NNN property or acquiring a new asset.
Reach out to discuss your triple net lease plans and know more about the financing options available.
