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Net Lease Real Estate
In commercial real estate, a net lease requires the tenant to pay rent as well as some or all of the property expenses which normally would be paid by the property owner. These include expenses such as real estate taxes, insurance, maintenance, repairs, utilities and other items.
There are several types of net leases, each of which has different sets of costs passed through to the tenant.
Net Lease
Single Net Lease (N): In a single net lease the tenant is responsible for paying property taxes as well as the base rent. This form of net lease is less common then double or triple net leases.
Double Net Lease
Double Net Lease: (NN) In a double net lease the tenant is responsible for paying rent, real estate taxes and building insurance. The landlord is typically responsible for any expenses related to structural repairs and/or common area maintenance (sometimes referred to as “CAM”). In some instances a reserve account is set up for any "roof and structure" expenses that may be anticipated or expected in the future. Also, in some cases a landlord may be further protected from liability by purchasing, or assuming, an insurance policy on the roof.
Triple Net Lease
Triple Net Lease (NNN): In a triple net lease the tenant agrees to pay all real estate taxes, building insurance, and maintenance on the property in addition to any normal fees that are expected under the agreement. In such a lease, the tenant is responsible for all costs associated with the repair and maintenance of any common area.
Absolute Net or Bondable Lease
Absolute Net or Bondable Lease: A bondable or absolute triple net lease is the most rigid form of a triple net lease, where the tenant assumes basically all risk associated with a property. These risks include, in addition to the obligations above in a Triple Net Lease, the obligation to rebuild after casualty or condemnation, regardless of the adequacy of insurance proceeds. Apart from the circumstances or even possible disaster that might befall a tenant’s property, rent must continue to be paid throughout the term of the lease. The lease itself may not be terminated, nor can there be any rent abatement. In this sense, the rent is due without fail under any circumstance, similar to the interest payment obligations inherent in a fixed income instrument like a bond. The lease is regarded, therefore, as a “bondable” lease.
Bondable leases are typically observed in "credit tenant lease" deals, where the perception of value resides not in the real estate itself, rather in the predictable, uninterrupted cash flow (rent), guaranteed by the investment-grade rated "credit" tenant. This ability to pay is ultimately supported by the tenant’s underlying high credit rating.
Typically net leases exhibit the following characteristics:
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Net Lease Real Estate
ECM Advantage
Net Lease Real Estate