NNN Versus the Other Net Lease Structures

Net lease structures come in several forms that get grouped and confused in commercial real estate conversation. Single net, double net, triple net, absolute net, and bondable net each transfer different levels of expense responsibility from the landlord to the tenant. For a Rochester tenant or investor working through lease options, understanding the ladder from lightest to heaviest tenant burden matters because the differences drive real dollars over the lease term.

Single net, sometimes shortened to N. The tenant pays base rent plus one expense category, usually property taxes. The landlord retains responsibility for insurance, CAM, and all building maintenance. Single net leases are rare in Rochester today. Most single net arrangements have been replaced by NNN or gross structures because single net creates a hybrid that neither side loves.

Double net, or NN. The tenant pays base rent plus property taxes and building insurance. CAM and building maintenance stay with the landlord. Double net is more common than single net but still less common than NNN or gross in the current Rochester area market. Double net properties sometimes appear on older leases from prior decades that have not been updated to modern NNN forms.

Triple net, or NNN. The tenant pays base rent plus property taxes, insurance, and CAM. The landlord retains responsibility for the building structure including roof, foundation, structural walls, and major systems. Most commercial single tenant and multi tenant leases in Rochester run NNN today. It has become the market standard for retail, industrial, and much of office.

Absolute net, sometimes called NNNN or hell or high water lease. The tenant pays everything. Base rent plus all operating expenses plus all capital expenses including structural repairs and replacements. The landlord’s role is essentially to collect rent and let the tenant handle everything else. Absolute net leases typically appear on long term single tenant properties with credit tenants like national fast food chains, dollar stores, and pharmacies where the tenant is a major public company that wants full control of the building.

Bondable net leases. A variant of absolute net where the tenant continues paying rent even in scenarios where the property becomes untenable through casualty, condemnation, or other extreme events. The tenant essentially guarantees rent regardless of what happens to the building. Bondable leases are rare and appear primarily in credit tenant sale leaseback structures.

How lease structure affects cap rates. Investors value single tenant absolute net properties with credit tenants and long term leases at very tight cap rates because the income is bond like. A national credit tenant on a 20 year absolute net lease might trade at a 5.75 to 6.75 percent cap rate in the current Rochester area market. The same building empty or with a weaker tenant on a shorter NNN would trade at a much wider cap rate reflecting the additional risk.

How lease structure affects tenant risk. Absolute net puts all the risk on the tenant including major capital events like roof replacement at $100,000 to $300,000 depending on building size. Michigan freeze thaw cycles push parking lot resurfacing costs into the same range on larger sites. NNN leaves major capital events with the landlord, giving the tenant more predictable long term expense. Tenants signing absolute net should verify what capital work the building actually needs and factor those costs into the effective rent.

What tenants should read carefully. The definition of what each N includes and excludes. The allocation of major capital items including roof, HVAC, parking lot resurfacing, and structural repairs. Any caps or limits on tenant obligations. Insurance requirements and who carries which policies. Casualty and condemnation clauses that determine what happens if the building suffers major damage.

The Michigan context. Rochester NNN leases follow general market conventions with regional variations. Michigan property tax uncapping at sale affects tax pass throughs after any building transaction. Michigan is an attorney close state, which affects how lease disputes get resolved and how tenants protect themselves during transactions. Attorney involvement on both sides of major commercial leases is standard practice in the region.

TDG Commercial, known as best commercial real estate agents in Rochester, helps both landlords and tenants understand which net lease structure fits specific situations across the region.