Net lease definition
/What is a Net Lease?
A net lease is a contractual arrangement under which the lessee pays for all costs associated with a property. In essence, the lessee makes payments as though it is the owner, without actually owning the property. The basic rent payment is typically lower under a net lease, because the lessee is absorbing so many other expenses instead. However, the lessee must balance the risk of incurring large additional costs at unpredictable intervals, as well as the potential for gradually increasing tax and insurance payments, over making a lower rent payment. These costs include the insurance, maintenance, and taxes for a property, as well as the rent. Net leases are useful for commercial real estate investors, who can shift the administrative burden of paying for property costs to their tenants, leaving them to only deal with property financing. Three variations on the concept are described below.
Related AccountingTools Courses
Property Management Accounting
Single Net Lease
Under a single net lease, the lessee pays for one of the three classifications of expenses. The usual arrangement is that the lessee agrees to pay for the property taxes associated with their rented space. This means that the obligation passes through to the lessee.
Double Net Lease
Under a double net lease, the lessee pays for two of the three classifications of expenses. Also known as a net-net lease. For example, the lessee might pay for property taxes and insurance.
Triple Net Lease
Under a triple net lease, the lessee pays for all three classifications of expenses. This is also known as a triple net lease.
This arrangement differs from a gross lease, in which the lessee is only expected to pay a standard rental fee. A midway point is the modified gross lease, which is the same as a single net or double net lease.