NNN, NN, and Absolute Net: Who Actually Pays What

“Triple net” is the most used and least precise phrase in net lease investing. Offering memoranda use it for leases where the tenant replaces the roof and for leases where the landlord does. Brokers use “absolute net” and “bondable” as if they were the same thing, and sometimes they are. The label is shorthand for a negotiated allocation of costs and risks, and as one Holland & Knight review puts it, the actual obligations are set by the lease language, not by the name used to describe it.

This guide compares the four structures net lease investors meet most often, sets out who typically pays for what under each, and explains how the differences change underwriting and the asset management workload. Where the guide says “typically,” read it as a starting assumption to test against the lease, never as a substitute for reading it.

The four structures

Absolute net and bondable leases

An absolute net lease puts every cost of the property on the tenant: taxes, insurance, maintenance, repairs and replacements, including roof, structure, parking and building systems. A bondable lease goes further and makes the rent obligation unconditional, which is why it is also called a “hell or high water” lease. The tenant pays rent through casualty and condemnation, rebuilds after a fire whether or not the insurance proceeds are enough, and has no right to terminate or abate rent.

The distinction matters. Many leases described as absolute net still let the tenant abate rent after a casualty or terminate after a large condemnation. Those leases put the costs on the tenant but not all of the risk. A truly bondable lease makes the rent behave like a bond coupon, which is the point of the name, and it is the form lenders look for in credit tenant lease financing, where the loan is sized largely on the tenant’s credit.

Triple net (NNN)

In a standard NNN lease the tenant pays base rent plus the three “nets”: real estate taxes, property insurance and operating or maintenance costs. In a single-tenant building the tenant usually pays or contracts for these directly. In a multi-tenant property the tenant pays its pro rata share, usually through monthly estimates reconciled once a year.

The question an NNN label leaves open is capital. Many NNN leases leave the landlord responsible for the roof, the structure, or capital replacements above a cost threshold. Investors sometimes describe this as “NNN with landlord roof and structure,” and it is a meaningfully different asset from an absolute net lease with the same rent.

Double net (NN)

A double net lease typically has the tenant paying taxes and insurance, with the landlord keeping some or all maintenance, most often roof, structure and, in multi-tenant property, parking lot and common areas. Usage varies by market and by broker; some people call a lease NN that others would call NNN with landlord roof and structure. The labels overlap enough that only the repair and maintenance articles settle the question.

Modified gross

A modified gross lease folds some or all operating costs into the rent. A common form uses a base year or expense stop: the landlord pays costs up to the base year level and the tenant pays its share of increases. Modified gross structures are more common in office and multi-tenant flex than in single-tenant net lease, but net lease investors meet them in small-bay assets and in older leases bought as part of a portfolio. Here the landlord carries the expense risk up to the stop, and that changes the underwriting.

A fifth label, single net, where the tenant pays only taxes, appears occasionally and is treated here as a variant of modified gross.

Who typically pays what

The table shows typical allocations. Each cell is an assumption to confirm against the lease, not a definition.

Roof and structure: where the label stops helping

Most disputes and most underwriting surprises in “NNN” assets sit in four questions.

1. What is “structure”? Some leases define it as foundation, load-bearing walls and the roof frame. Others include the roof membrane, exterior walls, slab or underground utilities. If the lease does not define it, expect argument over whether a failed slab or a collapsed sewer line belongs to the landlord.

2. Repair or replacement? A tenant may be required to “maintain and repair” the roof while the landlord keeps “replacement.” The line between a large repair and a replacement is often where the money is.

3. Is there a capital threshold or amortization? Some leases put capital items on the landlord but let the landlord pass the cost through amortized over its useful life, with the tenant paying only the portion falling within the remaining term. Others have the tenant pay replacements up to a dollar cap per occurrence.

4. Who controls the work? If the landlord keeps the roof but the tenant controls access, warranties and contractors, the landlord can carry the cost without control over the timing.

Read the repair article, the definitions, the casualty article and any exhibits that allocate specific systems. Warranties assigned at construction or acquisition also matter: a roof warranty that names the landlord can change who effectively bears a leak.

How pass-throughs actually move

Even where the tenant bears a cost, the way it pays affects the owner’s risk and workload.

• Taxes. The tenant may pay the taxing authority directly or reimburse the landlord. Direct payment saves administration but leaves the owner exposed if the tenant misses a bill, since unpaid taxes become a lien on the property. Owners who allow direct payment usually require proof of payment by a stated date.

• Insurance. The tenant may carry the property policy, the landlord may carry it and bill the tenant, or a creditworthy tenant may self-insure under a rating or net worth test. Each option shifts who controls coverage terms, deductibles and claims handling.

• Operating costs. In a single-tenant building the tenant usually contracts directly for maintenance. In multi-tenant property the landlord pays and recovers through estimates and an annual reconciliation, subject to the lease’s definition of operating expenses, exclusions, administrative fee, caps on controllable costs and tenant audit rights.

A multi-tenant NNN center therefore carries real administrative work for the owner even when every lease is “NNN.” Recoveries that are not reconciled on time, or that include costs a lease excludes, turn into credits and disputes.

How the structure changes underwriting

The structure decides which lines appear below rent in the pro forma and how much judgment they require.

• Absolute net and bondable. Underwriting concentrates on tenant credit, remaining term, rent growth and residual value. Operating lines are close to zero, though owners still budget for entity, accounting and asset management costs that the lease does not cover.

• NNN with landlord roof and structure. Add a capital reserve and, ideally, a property condition assessment that dates the roof and paving. A roof near the end of its life under a short remaining term is a different risk from the same roof under a fifteen-year term, because it may fall to the owner before the tenant decides whether to renew.

• NN. Add maintenance expense and reserves for each landlord system, plus property management cost if the owner must actively manage contractors.

• Modified gross. Underwrite expenses line by line, model growth over the base year, and account for the gap between actual expenses and what the stop lets you recover.

An illustrative comparison. Two single-tenant buildings each produce $500,000 of annual base rent. One is absolute net with eleven years remaining. The other is NNN with landlord roof and structure, six years remaining and a roof the condition report dates near the end of its useful life, with a replacement estimate of $250,000. At the same purchase price, the second asset’s first-year cash yield matches the first, but its expected return over the hold does not. The roof may consume half a year’s rent, and it may come due just before the renewal decision. A buyer who prices the two leases off the same cap rate is treating a landlord obligation as if it were the tenant’s. These figures are hypothetical; the method is the point.

Lenders read the same documents. Landlord repair obligations can lead to required reserves, and in credit tenant lease financing any landlord obligations that remain are typically addressed separately, for example through a reserve, cash flow retained for the landlord or specialized insurance, because the loan assumes rent arrives without offset.

How the structure changes asset management

The lighter the lease, the more the owner’s job becomes monitoring rather than operating. Under any structure, though, the owner still has to confirm the tenant is doing what the lease requires.

• Every structure: rent collection, escalations, critical dates, insurance evidence, tax payment confirmation, estoppels and tenant credit monitoring.

• Where the tenant maintains: periodic inspections or maintenance records, because deferred maintenance by a tenant becomes the owner’s problem at expiration.

• Where the landlord keeps roof and structure: contractor relationships, warranty tracking, capital planning and the ability to respond to a leak within the lease’s repair period.

• Multi-tenant NNN and NN: budgets, estimates, annual reconciliations, cap tracking and audit responses.

• Modified gross: full operating budgets and base year tracking for each tenant.

Questions to ask of any lease marketed as NNN

1. Which party repairs and which party replaces the roof, structure, HVAC and parking lot, and how does the lease define each?

2. Is there a capital threshold, amortization rule or per-occurrence cap?

3. Does the tenant pay taxes and insurance directly or reimburse, and what proof is required?

4. May the tenant self-insure, and what test permits it?

5. Can rent abate, or the lease terminate, after a casualty or condemnation?

6. Who must rebuild after a casualty, and does that duty depend on the adequacy of proceeds?

7. Are there landlord obligations in exhibits, side letters or amendments that the summary omits?

8. What did the tenant’s estoppel say about landlord defaults or deferred repairs?

If the answers do not fit the label in the offering memorandum, underwrite the answers.

Where Rets fits

Rets abstracts leases and amendments with page and clause citations, so the repair, casualty and recovery terms behind the label are on the record, with the clause behind each answer. Chat answers questions such as who replaces the roof from your documents, with sources. Rets tracks rent and receipts, debt and maturities, and compares estoppels to the lease. For a portfolio, Lease Services abstracts the leases for you in three to five business days, priced per lease.