A triple net lease — commonly written as NNN — is the dominant lease structure in commercial real estate for retail, industrial, and freestanding properties. If you're leasing commercial space in the Chicagoland market, there's a good chance you'll encounter one.
The basic concept is simple: the tenant pays base rent plus the three "nets" — property taxes, property insurance, and common area maintenance (CAM). In practice, it's more complicated than that, and the details matter significantly.
The three nets, explained
Property taxes
You pay a proportionate share of the property's real estate taxes, typically based on your percentage of the total rentable square footage. If your suite is 10% of the building, you pay 10% of the tax bill. In Illinois, property tax assessments can increase significantly — sometimes dramatically — when a property changes hands or undergoes reassessment. Your NNN lease may or may not cap your exposure.
Property insurance
You pay your share of the landlord's insurance premiums for the building. This is typically the smallest of the three nets. Make sure the lease specifies what types of coverage the landlord is required to carry and that it doesn't include coverage for your personal property or business interruption, which are your own responsibility.
Common area maintenance (CAM)
CAM is often the most variable and contentious net. It covers expenses like parking lot maintenance and repaving, landscaping, snow removal, property management fees, lighting in common areas, and sometimes building administration costs. CAM charges can be highly variable year to year — a parking lot repaving or roof replacement can spike CAM dramatically in a single year.
Why the base rent number is misleading
When a broker quotes you "$18 NNN" for a retail space, that $18 per square foot is the base rent only. The nets might add another $4 to $8 per square foot on top, depending on the property's age, condition, and tax burden. Your actual all-in cost per square foot could be $22 to $26. Always request an estimate of current NNN expenses before comparing properties.
Key protections to negotiate
- CAM cap — limit annual increases in controllable expenses to 3–5%
- Exclusions from CAM — capital expenditures (roof, parking lot, HVAC) should be excluded or amortized
- Management fee cap — property management fees charged to CAM should not exceed 3–5% of base rent
- Audit rights — the right to audit operating expense calculations within 12 months
- Tax appeal rights — the right or requirement to appeal tax assessments that exceed a threshold
Modified gross: a middle ground
If full NNN exposure feels like too much risk, a modified gross lease is a common alternative. In a modified gross structure, the landlord and tenant negotiate which expenses each party covers. For example, the tenant might pay property taxes but the landlord covers insurance and CAM, or vice versa. This can provide more predictability for the tenant at the cost of a somewhat higher base rent.
Which structure is better depends on the specific property, your risk tolerance, and market conditions. A broker who knows the market can tell you which structure is standard for a given property type and help you negotiate accordingly.
