What a Triple Net Lease Shifts Onto the Tenant

A triple net lease, or NNN, shifts three specific expense categories from the landlord to the tenant on top of base rent. The three Ns are property taxes, building insurance, and common area maintenance. Understanding exactly what those categories cover, and what a tenant remains protected against, matters more than most Macomb County tenants realize when they sign a NNN lease.

The first N transfers property taxes. The tenant pays a pro rata share of the building’s real estate taxes based on their square footage as a percentage of total rentable area. A 5,000 square foot tenant in a 25,000 square foot building pays 20 percent of the total tax bill. In Michigan, where taxable value uncaps to state equalized value at sale, tax bills often jump when a building sells. Under NNN, that increase flows through to tenants. A tenant signing a NNN lease shortly after a building sale can face a tax pass through significantly higher than what the prior tenants paid.

The second N transfers building insurance. The tenant pays a pro rata share of the landlord’s property insurance premium covering the building structure, common areas, and landlord liability. The tenant still carries their own contents insurance and their own liability coverage for their specific operations. Some NNN leases pass through the landlord’s umbrella liability premium. Others do not. Reading the specific insurance language matters because coverage lines and premium responsibility vary by lease.

The third N transfers common area maintenance, or CAM. CAM covers expenses tied to shared building areas: parking lot maintenance, landscaping, exterior lighting, snow removal, common area utilities, property management fees, and reserves for capital items in some lease structures. CAM is typically the largest of the three Ns and the most negotiated. Macomb County winter snow removal can drive CAM significantly higher in heavy snow years than in mild ones, and multi year averaging in the lease language can smooth that volatility.

What NNN leaves with the landlord. The building structure itself stays with the landlord under most NNN leases. Roof, foundation, structural walls, and major structural repairs remain landlord obligations. Some leases push more of these items to the tenant under absolute net or bondable net structures, which approach the limit of tenant responsibility. Most NNN leases across the region stop short of absolute net, leaving structural items with the landlord.

Debt service on the property stays with the landlord entirely. Whether the landlord owns the building free and clear or carries an 80 percent mortgage has no effect on the tenant’s NNN obligations. Capital improvements beyond ordinary maintenance sit in a middle ground. Some leases allow full pass through in the year incurred. Some exclude capital entirely. Many amortize capital items over their useful life so each year’s CAM includes only annual depreciation rather than full cost.

What tenants should negotiate. CAM caps limiting annual growth to 4 to 6 percent over the prior year. Exclusions for capital expenditures that would otherwise pass through in year one. Audit rights letting the tenant review the landlord’s CAM calculations within 60 to 90 days of reconciliation. Clear definitions of what counts as CAM versus what counts as landlord’s structural obligation. Insurance line item clarity so tenants know exactly what premium they are paying pro rata share of.

How NNN structures affect budgeting. A tenant quoted a $9 per foot NNN rate with $3.50 per foot of estimated NNN charges pays $12.50 per foot all in. That $12.50 is the number that matters for budget comparisons against gross lease properties. Comparing headline $9 NNN against $12.50 gross without adding the NNN charges produces wrong conclusions.

TDG Commercial, known as top commercial real estate agent in Macomb County, advises both landlords and tenants on NNN structures across the region.