What a triple-net lease actually covers & the six-figure gap that gets overlooked
The three nets cover taxes, insurance, and CAM. The expensive question is who owns the roof.
“NNN” gets used so loosely in listings that the precision behind it has eroded. For a buyer coming out of multifamily into net lease for the first time, the gap between a NNN lease as advertised and a NNN lease as written can easily run into six figures over an extended hold.
The three nets are the easy part: taxes, insurance, and common area maintenance. Under a net lease the tenant pays each directly or reimburses the landlord, so none of the three directly erodes the income the cap rate was priced on (a leak known as ‘slippage’). On a true net lease your going-in cap rate is your return, and your accountant does more work on the property at tax time than you do all year.
The expensive question is what the three nets never mention: capital items like roof replacement, parking lot resurfacing, HVAC, and structural or foundation work. A single occurrence runs well into six figures, and whether it lands on you or the tenant depends entirely on lease language that the marketing flyer might not quote.
Three structures share the NNN label in practice:
Absolute NNN. The tenant carries everything, capital items included: roof, structure, parking, HVAC. The bond-like structure most net-lease buyers believe they are buying.
“Retail NNN.” The tenant takes the three nets and the landlord keeps the capital items. On the flyer it reads identically to absolute NNN. Over a 15-year hold the difference is a parking lot in year six and a roof in year eleven, paid by you.
NN. The tenant takes some responsibilities and the lease assigns the rest case by case. Nothing about the label tells you which; only the lease does.
The vocabulary is not standardized, brokers use the terms interchangeably, and the gap between what a buyer thought they bought and what the lease says is one of the most common sources of loss in the asset class. A 6.0% cap with landlord roof exposure is not the same yield as a 6.0% cap absolute net, and the price rarely reflects the difference until the repair bill does.
The first diligence step on any net lease deal is reading the lease against the flyer, specifically the maintenance, repair, and capital sections. I keep a longer walkthrough of the full lease read on the site, covering credit, term, escalations, and basis. The short version fits in one line: find out who owns the CapEx before you find out the hard way.
Unsure about a specific property? Send the lease and the flyer and I’ll reconcile them. Talk to Dalton
General information, not tax, legal, or investment advice. 1031 exchanges run on strict statutory deadlines; work with your CPA, qualified intermediary, and attorney before acting.