A lease under which the tenant pays some or all of the property's operating expenses in addition to base rent, shifting cost risk from landlord to tenant.
The longer version
The degree matters. A single net lease adds taxes, a double net adds insurance, and a triple net adds maintenance, with absolute net going further and leaving the tenant responsible for structure and casualty obligations. Lenders underwrite each differently because the landlord's exposure to expense growth changes with the form.
In net lease lending the credit of the tenant often matters more than the property. Diligence therefore centres on the lease itself: term, renewal options, assignment rights, casualty and condemnation provisions, and whether the tenant will sign an estoppel and a subordination agreement.
Common questions
- What is the difference between triple net and absolute net?
- Under triple net the tenant pays taxes, insurance, and maintenance, but the landlord may retain structural and roof obligations. Absolute net leaves essentially everything with the tenant, including structure and rebuild obligations.
- Why do net lease lenders focus on the tenant?
- Because repayment depends on a single lease payment stream. If the tenant fails, the property's income goes to zero rather than declining, so tenant credit is the primary source of repayment.
- What lease documents does a lender need at closing?
- The lease and all amendments, a tenant estoppel confirming the terms and the absence of defaults, and usually a subordination, non-disturbance and attornment agreement.