What are the Different Types of Net Lease?
Among net lease investment properties, there are sub-types of leases with different expense structures. Depending on an investor’s needs, different expense structures and levels of landlord responsibility can be leveraged. Below, we have outlined the various types of net leases, ranging from absolutely no landlord responsibilities or requirements to expense structures that require a higher level of responsibility from the investor.
Absolute Net Lease | Abs NNN
Sometimes abbreviated to Abs NNN leases, absolute net leases are defined by their highly passive structure. Absolute net leases require absolutely no landlord responsibility for expenses whatsoever, making them highly attractive to investors who desire a truly passive income stream. While other expense structures require the landlord to pay for some or all the building expenses, absolute net leases require the tenant to pay these expenses directly.
Triple Net Lease | NNN
Triple net leases, or NNN leases for short, are similar to Abs NNN leases in that they require no landlord responsibilities. The tenant pays for property taxes, insurance, and maintenance of the roof, structure, and common areas of the NNN property. The difference between a triple net lease and an absolute net lease is that in a triple net lease, the tenant may not pay for expenses directly. In some situations, the landlord may pay for expenses up-front on behalf of the tenant, but by calendar or fiscal year-end, the tenant provides full reimbursement for those expenses to the landlord.
Double Net Lease | NN or NN (R&S)
In most situations with NN or NN (R&S) leases, the tenant is responsible for paying property taxes and insurance, whereas the landlord is only responsible for maintaining the roof, structure, parking lot, and/or common areas – hence the R&S abbreviation for roof and structure. If the landlord is responsible for paying any expense that is not ultimately reimbursed by the tenant, the lease should not be considered a true triple net lease.
Single Net Lease | N or Net Lease
Single net leases, or net leases, are similar to NN leases in that the landlord is responsible for paying for property maintenance in addition to another expense, like property taxes or insurance. However, single net leases require the tenant to pay for remaining expenses. Single net leases are rare.