Triple net (NNN)
Triple net is a lease where the tenant covers absolutely all operating costs on the building in addition to the rent: property tax, insurance and maintenance. It is the most common lease form in institutional American property and is also used for single-tenant warehouses, logistics and large commercial leases in Norway. The name "triple net" comes from the rent being negotiated "net" of three cost categories that the tenant takes over.
The difference from a traditional gross lease is that the owner has no exposure to how OpEx develops. The owner receives a fixed rent plus any CPI adjustment, while the tenant carries all cost risk (including the consequences of energy price jumps, insurance premiums that rise with flood risk, and municipal charges that are adopted ad hoc). That makes triple net leases attractive for funds and insurance companies looking for predictable cash flow, but it also sets higher requirements for the tenant's creditworthiness, since the owner has no operational tool to protect its own return if the tenant goes bankrupt.
In Norway we have a parallel tradition with bare-house leases, where the tenant takes over the building owner's responsibilities as developer and typically also CapEx items such as roof and facade. The difference is that triple net as a general rule limits the tenant's responsibility to operations and periodic maintenance, while bare-house can include the entire building shell. In practice the terms are used somewhat interchangeably, and the contract terms vary from contract to contract; it is the concrete cost split that counts, not the label on the agreement. Norwegian triple net contracts are usually based on the Norsk Eiendom template or a modified international template.
A triple net lease affects yield, internal rate of return and debt service coverage ratio. The yield can look higher on paper because net operating income is close to gross rental income, but the real risk picture is concentrated in the tenant's creditworthiness and the length of the lease. Banks typically price this in by requiring a lower loan-to-value ratio or separate credit covenants tied to the tenant's accounts. For a buyer in a transaction, a triple net contract with a long term and a solid tenant is the closest you get to a bond investment in property; a less solid tenant on the same contract structure can, by contrast, be risky even if the yield looks attractive.
In Placepoint you can compare tenants, lease length and building data from the property panel when you analyse a triple net portfolio.
How it looks in Placepoint
In Placepoint you find this in Building panel:
From Placepoint's glossary: Triple net (NNN)
More information: Norsk Eiendom.
English: Triple net lease (NNN). A lease where the tenant covers all operating expenses, insurance, and maintenance in addition to base rent. Closely related to but distinct from the Norwegian bare-house lease.
Frequently asked questions
What is the difference between triple-net and bare-house?
Triple-net is the Anglo-Saxon standard where the tenant covers property tax, insurance and maintenance in addition to the base rent. Norwegian bare-house contracts are close to this, but often do not cover property tax and shared costs in the same way. Always check the wording before you compare yield.
Why is NNN attractive for the landlord?
Predictable net cash flow without operational risk: the tenant takes both the cost level and the cost growth. That gives a lower yield and a higher purchase price than gross or modified contracts. NNN is standard in logistics, grocery and some industrial properties.
What are typical disadvantages for the tenant?
The tenant carries all CapEx risk within the lease period, including unexpected maintenance and upgrade costs. In buildings with outdated technical systems or a poor energy standard, the total cost can be considerably higher than gross rent.
How does NNN affect due diligence?
Due diligence must check that the definition of "operating expenses" really covers everything the English term assumes. Norwegian lawyers often use hybrid contracts with bare-house elements, and some costs (property tax, ground lease) can fall outside.