What Is an NNN Lease

The first net is property tax, which the tenant reimburses or pays directly depending on the lease. The second is insurance, usually the building's property policy, again either reimbursed to the landlord or carried by the tenant directly. The third is maintenance, and this is where lease language varies the most: some NNN leases push all maintenance including roof and structure to the tenant, while others carve those two items out and leave them with the landlord. A lease described simply as NNN without reading the actual maintenance clause can hide a meaningful difference in what the owner still has to budget for.

A gross lease bundles taxes, insurance, and maintenance into a single rent figure the landlord manages and pays out of. A modified gross lease splits some of those costs to the tenant while keeping others with the landlord. NNN goes further, passing nearly all operating costs through, which is why NNN rent is typically quoted lower per square foot than gross rent on a comparable building: the headline number reflects only the base rent, not the full occupancy cost the tenant is actually paying.

Single-tenant retail such as pharmacies, quick-service restaurants, and auto parts stores commonly lease on an NNN basis across the state, along with a growing share of medical office and industrial buildings. Seattle-area landlords leasing to national retail and pharmacy tenants and Spokane-area owners leasing to regional operators both use the structure, though tenant quality and lease length vary widely between the two markets and directly affect what the lease is worth on resale.

A buyer evaluating an NNN investment should confirm exactly which costs the tenant covers, whether there's a cap on annual expense pass-throughs, what happens to those obligations if the tenant vacates before lease end, and whether roof and structural repair sit with the tenant or the landlord. These details, not the NNN label itself, determine the real ongoing obligation an owner is taking on.

It's also worth checking how the lease treats a partial vacancy or a tenant's bankruptcy, since a rejected lease in bankruptcy court can leave the landlord absorbing pass-through costs that were budgeted to fall on the tenant, at least until a replacement tenant is found. A buyer who has only read the rent and term sections of an NNN lease, without reading the default and bankruptcy provisions, has really only read half the document that determines the investment's actual risk.

Most NNN leases include scheduled rent escalations, either a fixed annual percentage, a periodic step-up every few years, or occasionally a tie to an inflation index, and the escalation structure directly shapes the property's long-term yield beyond the going-in cap rate. A lease with flat rent for ten years is a very different holding than one with three percent annual bumps, even if the starting rent and cap rate look identical at purchase, and comparing two NNN offerings on going-in yield alone without checking the escalation schedule can understate the real difference in total return.

NNN is sometimes confused with a ground lease, where the landlord owns only the land and the tenant owns the building on top of it, but the two structures are distinct. A standard NNN lease has the landlord owning both land and building while passing operating costs to the tenant, while a ground lease separates land ownership from building ownership entirely, with the building typically reverting to the landowner at lease end. Washington buyers should confirm which structure they're actually looking at, since financing, resale value, and long-term ownership rights differ meaningfully between the two.