An NNN lease, short for triple net, requires the tenant to pay property tax, building insurance, and maintenance on top of base rent, rather than the landlord absorbing those costs and building them into the rent number. The three "nets" are what give the structure its name, and understanding what each one actually covers is the difference between reading a lease abstract correctly and missing a cost that was supposed to belong to the tenant.
The Three Nets, One at a Time
Property tax is the most predictable of the three, since it's set by the county assessor and passed through directly. Insurance is usually structured as the tenant reimbursing the landlord for a master policy, or the tenant carrying its own coverage naming the landlord as an additional insured, and the lease should specify which. Maintenance is the broadest category and the one most likely to generate disputes, covering everything from parking lot resurfacing to HVAC replacement, and a well-drafted lease spells out exactly where the line sits between tenant responsibility and landlord capital items like roof and structure.
What This Means for the Landlord's Income
Because operating costs pass to the tenant, the rent a landlord collects under an NNN lease is closer to net income than gross income, which is what makes the structure attractive to an investor who doesn't want to manage a building day to day. It also means the income is more exposed to a single point of failure: if the tenant vacates, the landlord is suddenly responsible for tax, insurance, and maintenance with no rent coming in to cover any of it.
Where the Lease Language Actually Matters
Not every lease marketed as "triple net" allocates costs identically. Some cap the tenant's maintenance responsibility, some carve out roof and structure as a landlord expense regardless of the net designation, and some absolute net leases push even those items onto the tenant. A landlord comparing two NNN listings with the same base rent can end up with meaningfully different net income depending on which version of the lease is actually in place, which is why the abstract has to be pulled rather than assumed from the listing description.
Rent bump structure sits alongside the expense allocation as the other variable worth checking closely. A lease with flat rent for ten years produces a very different long-term return than one with 2% annual increases, even if the starting rent and cap rate look identical on day one.
Where NNN Leases Show Up in a 1031 Exchange
A Scottsdale investor exchanging out of a management-heavy rental frequently lands on NNN product specifically because the lease structure removes most of the operating burden a smaller residential property carried. That makes single-tenant net lease real estate a common replacement property choice, sourced along corridors like the Airpark and Loop 101 where credit tenants and newer construction tend to concentrate, and screened against the exchange's identification and closing calendar before it goes on the list.
Common 1031 Exchange Questions
What do the three nets in an NNN lease actually cover?
Property tax, building insurance, and maintenance. The tenant pays or reimburses the landlord for all three, on top of base rent, rather than the landlord building those costs into the rent itself.
Does the landlord have zero responsibility under a triple net lease?
Not necessarily. Many NNN leases carve out roof and structural items as landlord capital responsibilities even though the tenant covers day-to-day maintenance, tax, and insurance. The exact split depends on the lease language, not the triple net label alone.
Why do two properties marketed as triple net sometimes have different actual expense allocations?
The triple net label isn't standardized. Some leases cap tenant maintenance responsibility or exclude structural items, while absolute net leases push nearly everything onto the tenant, so the lease abstract has to be checked rather than assumed from the listing.
Is an NNN lease property a good fit for a 1031 exchange?
It's a common replacement property choice for investors moving out of management-intensive real estate, since the tenant absorbs most operating costs. Whether it fits a specific exchange depends on the investor's objectives, the lease term, and the tenant's credit.
What happens to the landlord's costs if the NNN tenant vacates?
Property tax, insurance, and maintenance responsibility fall back to the landlord immediately since there's no tenant reimbursing them, which is why guarantor credit and remaining lease term matter as much as the expense structure itself.
