The Tenant Pays the Taxes, the Insurance, and the Roof
A triple net lease transfers building costs to the occupier, turning the landlord position into something much closer to holding a bond than operating a property.
What the Three Nets Are
A triple net lease requires the tenant to pay property taxes, building insurance, and maintenance, in addition to rent. Variations exist: a single net covers taxes only, a double net adds insurance.
Under a full triple net, sometimes called absolute net, the tenant is responsible for essentially everything including structural elements and roof.
The landlord stops being an operator and becomes a recipient of payments. That changes what the investment actually is.
Why the Owner Position Resembles a Bond
With costs transferred, the owner receives a contractual payment over a long term from a specific counterparty, typically with fixed escalations written in.
| Triple net property | Conventional lease | |
|---|---|---|
| Operating risk | Tenant | Landlord |
| Cost inflation | Tenant absorbs | Landlord absorbs |
| Management required | Minimal | Active |
| What is being priced | Tenant credit plus land | Property operating performance |
Because the income is contractual and the costs are elsewhere, valuation turns heavily on the tenant creditworthiness. A building let to a strong national chain trades at a materially lower yield than an identical building let to a weak local operator.
Why Companies Sign Them
For an occupier, a triple net lease combined with a sale of the property releases capital while retaining control of premises, which is the sale leaseback structure. The tenant accepts operating responsibility, which it was already bearing as an owner, in exchange for the proceeds.
Retailers, restaurant chains, and logistics operators use this heavily, because their property is essential to operations and generates lower returns than their core business.
The Risks That Remain With the Owner
The structure transfers cost, not all risk.
Credit risk is the main one. If the tenant fails, the income stops, and the owner is left with a building that may have been fitted for a specific use. A purpose built facility with one plausible occupier has limited alternatives.
Residual value risk follows from that. A long lease on a specialised building can leave the owner, at expiry, holding an asset needing substantial capital to re-let and possibly worth far less than assumed.
Inflation risk depends entirely on the escalation terms. A lease with fixed annual increases below inflation loses real value steadily over a twenty year term, and that erosion is easy to overlook when the nominal payments look secure.
How to Assess One
The useful questions are about the tenant and the building rather than the lease. How strong is the tenant credit and is the lease guaranteed by a parent. How specialised is the building and who else could occupy it. What are the escalations relative to expected inflation. And how does the rent compare to market, since a lease well above market will not be renewed.
That last one recurs. A sale leaseback priced with above market rent produces attractive current yield and a reversion problem at expiry.
The Bottom Line
A triple net lease moves taxes, insurance, and maintenance to the tenant, converting the owner into a holder of a contractual income stream priced largely on tenant credit. The retained risks are the tenant failing, the building being hard to re-let, and escalations that fail to keep pace with inflation over a very long term.