Under a triple net lease, the tenant pays base rent plus a proportionate share of three operating costs: real estate taxes, building insurance, and common area maintenance. Those are the three “nets.” On top of them, triple net lease expenses almost always include utilities for the leased space, interior repairs, and often HVAC servicing for the unit the tenant occupies. The landlord typically keeps responsibility for structural elements like the roof, foundation, and exterior walls, though the lease language is what actually controls where each cost lands.
Property Taxes
The first net is real estate tax. In a multi-tenant building, your share is usually calculated by dividing your leased square footage by the total rentable area. A tenant occupying 20% of the building pays 20% of the tax bill. In a single-tenant property, you pay the whole thing.
Most NNN leases don’t hand you the full bill from day one. They set a base year, which is the first year of the term, and the landlord absorbs the taxes assessed during it. After that, you pick up any increase. If the property was assessed at $80,000 in year one and $95,000 in year two, your added obligation is your pro-rata share of that $15,000 increase.
The surprise most tenants don’t see coming is reassessment after a sale. Many jurisdictions reassess a property’s value based on the sale price, so a building that changes hands at a much higher number can push the tax bill up sharply the following year. A tenant who signed when the building was assessed at $2 million can watch the tax obligation spike if the property sells for $5 million. Look for a cap on tax pass-throughs, or a reassessment exclusion clause that limits increases triggered by a voluntary sale.
Building Insurance
The second net is property insurance. You pay your proportionate share of the premiums the landlord carries on the building, which typically covers property damage from fire, storms, and vandalism, plus general liability for common areas. The allocation uses the same square-footage ratio as taxes.
This covers the building’s policy, not your business. Most NNN leases separately require you to carry your own commercial general liability insurance, business personal property coverage, and sometimes business interruption insurance. Those tenant policies protect your inventory, equipment, and operations, and their cost is entirely separate from the insurance net passed through by the landlord.
Insurance premiums move less predictably than taxes. Claims history, location-specific risks like hurricane or flood exposure, and broader market conditions can push premiums up in a single renewal cycle after a major regional weather event. Check whether the lease includes a cap on annual insurance pass-through increases.
Common Area Maintenance
The third net, and the one that generates the most disputes, is common area maintenance. CAM covers the cost of operating and maintaining the shared spaces of the property. Typical CAM expenses include:
- Landscaping and groundskeeping, including lawn care, irrigation, tree trimming, and seasonal plantings
- Parking lot maintenance, including resurfacing, restriping, sweeping, snow removal, and salting
- Exterior lighting for parking areas and the building’s exterior fixtures
- Janitorial services for lobbies, restrooms, hallways, and other shared interior spaces
- Security personnel, surveillance systems, and access control for shared areas
- Trash removal and dumpster service for common areas
- Utilities for shared lobbies, corridors, and mechanical rooms
- Property management fees, which typically range from 3% to 6% of gross revenues
CAM is allocated pro rata by the ratio of your leased space to the building’s total leasable area. What actually qualifies as a CAM expense is defined in the lease, and this is where careful reading matters most. A broadly worded clause can allow a landlord to pass through costs tenants wouldn’t expect, from capital improvements to legal fees to costs tied to filling vacant spaces.
CAM Caps: Cumulative vs. Non-Cumulative
Because CAM is variable and largely controlled by the landlord, many tenants negotiate a cap on annual increases. The caps come in two forms, and the difference matters over a long lease.
A non-cumulative cap sets a hard ceiling on how much CAM can increase in any single year. If the cap is 5% and actual expenses jump 10%, you pay only a 5% increase. The unused portion disappears. In year three, the cap resets at 5% above whatever you actually paid in year two.
A cumulative cap also limits annual increases to the stated percentage, but the landlord can bank any unused portion for future years. If expenses rise only 2% in a year with a 5% cap, the landlord holds a 3% credit. If expenses spike 10% the following year, the landlord can pass through an 8% increase by drawing on the banked amount. Over a ten-year lease, cumulative caps offer meaningfully less protection. If a lease says “5% annual cap,” confirm which type it is.
Expense Stops and Base Years
Some NNN leases use an expense stop or base year mechanism instead of, or alongside, a percentage cap. Both define how much of the operating costs the landlord absorbs before your share kicks in.
An expense stop is a fixed dollar amount per square foot negotiated at signing. The landlord covers operating costs up to that amount, and you pay your pro-rata share of anything above it. A stop of $9.00 per square foot means the landlord absorbs the first $9.00 and you pick up the rest. The stop doesn’t adjust over the lease term unless the lease says so.
A base year works differently. Instead of a fixed dollar figure, it uses actual operating costs during a specific calendar year as the benchmark. You pay your share of increases above whatever the costs happened to be during that year. Because the base amount floats with actual costs rather than being negotiated in advance, a base year can land higher or lower than an expense stop depending on market conditions during the reference period. Every lease uses one mechanism or the other, not both.
What the Three Nets Don’t Cover
The three nets don’t exhaust what you pay. NNN leases typically layer on several additional obligations.
Utilities for your leased space, including electricity, gas, water, and internet, are almost always your responsibility and usually metered separately. Interior maintenance and repairs within your space, from replacing light fixtures to patching drywall, fall on you as well. HVAC maintenance for rooftop units serving your space is frequently a tenant obligation even in a standard NNN lease, and that can be a meaningful expense for older equipment.
In a standard triple net lease, the landlord generally keeps responsibility for structural elements: the roof, foundation, exterior walls, and major building systems. This is one of the key distinctions between a standard NNN lease and an absolute net lease, where structural repairs transfer to the tenant too. In practice, the line between a “repair” and a “capital improvement” gets blurry. Replacing a few shingles is a repair; replacing the entire roof is capital. HVAC and plumbing work falls somewhere in between, and disputes over who pays are common.
How the Bills Actually Arrive
NNN expenses rarely arrive as one annual bill. Most leases use an estimate-and-reconcile cycle. At the start of each year, the landlord budgets estimated costs for taxes, insurance, and CAM, then divides those estimates into monthly installments you pay alongside base rent. At year end, the landlord reconciles those estimates against actual expenses and sends a statement showing the difference.
If you overpaid through the monthly estimates, you receive a credit toward future payments or, less commonly, a refund. If actual costs exceeded the estimates, you owe the difference, usually due within 30 days of receiving the reconciliation. This true-up can produce unwelcome surprises, particularly in the early years of a lease when neither side has a track record of actual costs for the property.
Clean reconciliations include detailed ledgers, invoices, occupancy records, and a written explanation of the allocation method. Review every reconciliation line by line. The expenses that generate the most disputes are management fees, capital improvement charges that arguably shouldn’t be in CAM, and costs that benefit other tenants disproportionately.
CAM Exclusions Worth Negotiating
The most negotiable part of an NNN lease is the list of expenses that qualify as CAM. Tenants with leverage should push for specific exclusions, because they won’t appear unless you ask.
- Capital improvements. Replacing a roof or repaving a parking lot benefits the property long term and shouldn’t be passed through as an operating expense. If the landlord insists on including capital items, a reasonable compromise is to amortize the cost over the item’s useful life and pass through only each year’s amortized portion.
- Leasing costs. Commissions, legal fees, and marketing expenses for finding new tenants are the landlord’s cost of doing business.
- Costs reimbursed by insurance. If the landlord collects insurance proceeds for a repair, that repair cost shouldn’t also show up in CAM.
- Landlord’s financing costs. Mortgage interest, loan fees, and ground lease payments have nothing to do with operating the building.
- Costs caused by the landlord’s violations. Fines or remediation costs from the landlord’s failure to comply with building codes or environmental regulations shouldn’t be shared.
- Improvements for other tenants. Build-out costs, painting, or renovations done for another tenant’s space don’t belong in the shared pool.
Getting these exclusions in writing matters because CAM clauses tend to be drafted broadly. A lease that says the tenant pays “all costs of operating and maintaining the property” without specific exclusions gives the landlord wide discretion over what gets passed through.
Sales Tax on Commercial Rent
Depending on where the property sits, you may also owe sales tax or a similar transaction tax on your commercial rent payments, including the NNN charges. This catches many tenants off guard because residential leases are almost never taxed this way. Florida charges a state-level tax on commercial rent (reduced to 2% as of mid-2024) plus a county surtax of up to 1.5%. Hawaii imposes a general excise tax of approximately 4.166% on commercial rents. Several major cities levy their own commercial rent taxes, including New York City, San Francisco, and some Arizona municipalities. Most states don’t tax commercial rent at all, but verify local requirements before signing, because this cost sits on top of everything else.
Deducting NNN Expenses
For tenants operating a business from the leased space, the expenses paid under an NNN lease are generally deductible as ordinary and necessary business expenses. The federal tax code allows a deduction for “rentals or other payments required to be made as a condition to the continued use or possession” of property used in a trade or business.1Office of the Law Revision Counsel. 26 USC 162 – Trade or Business Expenses Because NNN charges for taxes, insurance, and CAM are required payments under the lease, they fall under this provision alongside base rent.
The deduction applies to the tax year in which the expense is paid or incurred, depending on your accounting method. Keep every reconciliation statement and monthly invoice, because the NNN components are billed separately from base rent and may be questioned during an audit. A tenant who pays a large true-up in January for the prior year’s CAM reconciliation deducts that amount in the year it’s paid, not the year the expenses were incurred, if the tenant uses cash-basis accounting.
The Exposures to Price In
Base rent in an NNN lease is usually lower than it would be under a gross lease because the landlord isn’t pricing in risk or markup on operating expenses. The tradeoff is exposure to variable costs that can be difficult to predict.
The biggest exposure is a large, unexpected repair. Even where the landlord covers structural elements, you handle everything else, and an aging HVAC system or a parking lot that needs resurfacing can produce five-figure bills with little warning. If the building is older, budget for this or negotiate a cap on annual maintenance exposure.
Property tax reassessment after a sale is the second. You don’t control whether the building sells, but a sale can trigger a reassessment that doubles or triples the tax bill. Without a reassessment exclusion clause, you absorb the increase.
Insurance volatility is the third. After major weather events or in high-risk coastal markets, premiums can spike dramatically in one renewal cycle. A ten-year lease with no insurance cap has no ceiling on this exposure.
Vague CAM language is the fourth. The fix is straightforward but has to happen before signing: define what’s included, define what’s excluded, set the cap, and confirm whether it’s cumulative or non-cumulative. Tenants who skip this and rely on the landlord’s good faith usually discover the problem when the first reconciliation statement lands.