Under a triple net lease, expenses on top of base rent fall into three categories the tenant pays directly: a pro-rata share of the property’s real estate taxes, a share of the building insurance premiums, and a share of common area maintenance (CAM). You also pay your own utilities, interior repairs, and your own business insurance. On a multi-year lease these add-ons can rival the base rent itself, so what the lease says about calculating, capping, and auditing them matters as much as the rent number.
The Three Nets, One by One
Each “net” is one category of property cost the landlord has shifted off their ledger and onto yours. In a multi-tenant building, your share of each is normally calculated as your leased square footage divided by the total leasable area. Occupy 3,000 square feet of a 30,000-square-foot building and you pay 10% of each bill.
Real Estate Taxes
Local governments assess the property based on its value, and you pay your proportional slice. Most landlords collect an estimated monthly amount alongside your rent, remit the full tax bill themselves, and then reconcile at year-end against the actual assessment.
Because the money comes out of your pocket, the accuracy of the assessment matters to you. The right to appeal, however, traditionally belongs to the owner. Some courts have recognized that tenants contractually obligated to pay the taxes under a net lease may also have standing, but this varies by jurisdiction. If you want control, negotiate a lease clause giving you the right to initiate an appeal or requiring the landlord to do so at your request.
Building Insurance
The second net is your share of the property’s insurance premiums, typically covering the structure against fire and storm damage plus general liability for common areas like hallways, lobbies, and parking lots. This protects the landlord’s investment in the building. It does not protect your business, which is why you carry separate policies of your own (covered below).
Common Area Maintenance (CAM)
The third net covers the cost of running the shared spaces. In a shopping center, that is the parking lot, sidewalks, landscaping, exterior lighting, and shared restrooms. In an office building, it is lobbies, elevators, stairwells, and corridors. Typical line items include snow removal, landscaping, parking lot resurfacing, security, janitorial services, and utilities for shared spaces. Many landlords also layer a management fee on top of total operating expenses.
CAM is the most contested of the three nets because the category is broad and the landlord has discretion over spending. That discretion is exactly why the lease language around what counts as CAM, and what doesn’t, matters so much.
What Else You Pay For Beyond the Three Nets
The three nets are the headline numbers, but a triple net lease stacks several other obligations on top.
You pay for every utility consumed inside your space: electricity, gas, water, internet, and trash removal. You handle interior maintenance and non-structural repairs, including plumbing within your walls, flooring, repainting, and the HVAC unit if it is dedicated to your space. Structural elements like the foundation, load-bearing walls, and the roof stay with the landlord under a standard triple net lease. An absolute net or “bondable” lease goes further and can shift even those to the tenant, including rebuilding after a casualty if insurance proceeds fall short. Absolute net arrangements are rare outside single-tenant properties leased to credit-worthy national brands.
Separately from your share of the building insurance, you need your own commercial general liability policy, property coverage for your inventory, equipment, and improvements, and potentially workers’ compensation. The lease will specify minimum limits and usually require you to name the landlord as an additional insured. Many landlords also require rent interruption insurance, which continues your rent payments to them if a casualty closes the property. Business interruption insurance covering your lost revenue during a closure is a separate decision worth making on your own.
If your business is new or lacks credit history, expect a personal guarantee. You, the owner, become personally liable, and if the business defaults the landlord can pursue your personal assets, including savings, investments, and in some cases your home. A “good guy guarantee” is a limited version where your personal exposure ends once you vacate and give proper notice, though the specific conditions vary.
Where the Disputes Come From
Most fights over triple net expenses happen in two places: the line between capital improvements and routine maintenance, and what qualifies as a legitimate CAM charge in the first place.
Capital Expenditures vs. Routine Maintenance
Replacing a light bulb in the parking lot is clearly maintenance. Installing an entirely new parking surface is clearly a capital improvement. The gray zone between those extremes is enormous, and the lease decides who pays. Under a standard triple net lease, routine maintenance falls on the tenant and major structural work stays with the landlord. The trouble is that “routine” versus “capital” is a judgment call. A landlord’s accountant might classify a $15,000 parking lot resurfacing as maintenance; you might reasonably see it as a capital improvement.
The cleanest protection is a dollar threshold written into the lease: expenses above that number are treated as capital. A middle-ground approach lets the landlord amortize large capital costs over their useful life and pass through only the annual amortized amount, provided the amortization period is reasonable and your obligation ends when your lease term does.
Items That Shouldn’t Be in CAM
Not everything the landlord spends on a property belongs in your CAM bill. Costs that benefit the landlord’s bottom line rather than building operations are worth excluding by name in the lease. Common exclusions:
- Capital improvements like a new roof or a major lobby renovation, which add long-term value to the landlord’s asset.
- Mortgage payments and debt service.
- Leasing commissions and advertising to find new tenants.
- Legal fees for the landlord’s disputes or lease negotiations with other tenants.
- Costs reimbursed by insurance or warranties.
- The landlord’s corporate overhead that is not tied to this specific building.
If the lease simply says you pay “all operating expenses,” you have very little leverage to dispute a charge later. Get the exclusions written in.
How the Charges Get Billed and Reconciled
Triple net charges are rarely billed at their exact amounts month to month. The landlord estimates your annual share of taxes, insurance, and CAM, divides by twelve, and collects it alongside your base rent. At the end of each calendar or lease year, the landlord reconciles those estimates against actual expenses and sends you a reconciliation statement.
If the estimate ran high, you get a credit against future payments. If actual costs exceeded the estimates, you owe the difference. These true-up bills can be large in years when tax assessments jump, insurance premiums spike after a regional disaster, or the landlord takes on significant maintenance. Budgeting a cushion above your monthly estimate helps absorb the hit.
Landlord billing errors on operating expenses are not rare, and they almost always run in the landlord’s favor. An audit clause gives you the right to review the landlord’s books, receipts, and invoices supporting what you have been charged. Without it, you are trusting the math with no recourse. A workable audit clause gives you at least 60 to 90 days after the reconciliation statement to request a review, lets you hire an auditor of your choosing, and does not restrict you to large accounting firms or prohibit contingency-fee auditors. If the audit uncovers an overcharge, the landlord reimburses you; many leases also provide that the landlord pays the audit cost when the overcharge exceeds a set percentage, commonly around 3% to 5% of the total billed.1SEC.gov. Commercial Triple Net Lease (Exhibit 10.13)
Lease Terms That Control Your Exposure
A triple net lease is not a take-it-or-leave-it document, even though landlords sometimes present it that way. The clauses worth fighting hardest for are the ones that limit unpredictable costs.
- A specific written list of CAM exclusions. Vague phrasing like “all costs reasonably incurred” leaves the discretion with the landlord.
- An annual cap on controllable operating expenses, often negotiated in the 3% to 5% range. Property taxes and insurance premiums are usually left outside the cap because the landlord cannot influence what the government assesses or what insurers charge.
- A capital expenditure threshold defining the dollar amount above which an expense is the landlord’s responsibility, or at minimum is amortized over a reasonable useful life.
- Audit rights with at least 90 days to request a review, your choice of auditor, and landlord-paid audit costs when overcharges exceed a set percentage.
- A base year stop, where the landlord covers operating expenses up to the amount incurred in the first year of your lease and you pay only the increases above that baseline. This is more common in office leases and shifts some of the NNN cost back to the landlord for year one.
- A tax appeal cooperation clause, giving you the right to challenge the assessment or requiring the landlord to do so at your request and expense.
Every dollar you agree to compounds over the term. An extra $0.50 per square foot of poorly defined CAM on a 5,000-square-foot space is $2,500 a year and $25,000 over a decade. The negotiation is where you control that number.
Deducting NNN Payments on Your Taxes
If you use the leased property for your trade or business, the rent and operating expenses you pay under a triple net lease are generally deductible as ordinary business expenses. Federal tax law allows a deduction for “rentals or other payments required to be made as a condition to the continued use or possession” of business property in which you have no ownership equity.2Office of the Law Revision Counsel. 26 U.S. Code 162 – Trade or Business Expenses That language is broad enough to cover base rent, your share of property taxes, insurance premiums, and CAM, because each is a required payment under the lease.
Rent is deducted in the year it applies to. If you prepay rent covering more than 12 months, a cash-basis taxpayer can only deduct the portion that applies to the current tax year and must spread the rest over the period it covers.3Internal Revenue Service. Publication 535 – Business Expenses Unlike a gross lease where everything is bundled into one rent figure, your records need to support each NNN category separately, so keep the reconciliation statements and backup documentation for every year.