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Signing a commercial lease in Arizona comes with important decisions, and one of the biggest is whether to agree to a Triple-Net (NNN) lease. While NNN leases can offer lower base rent, they also require tenants to cover expenses that might otherwise fall on the landlord. If you’re considering leasing a retail, office, or industrial space, here’s what you need to know before committing.
What Is a Triple-Net (NNN) Lease?
A Triple-Net (NNN) lease is a commercial rental agreement where tenants pay more than just their base rent—they also cover certain property-related expenses. This arrangement transfers financial obligations from the landlord to the tenant, making it an attractive option for property owners who want to reduce their costs and limit financial risk. While this lease type is most common in retail spaces, it’s also used for office buildings, industrial properties, and even standalone corporate locations, although office leases are more commonly structured as gross or modified gross leases.
In an NNN lease, tenants pay for:
- Property Taxes – Each tenant covers their proportionate share of property taxes, typically based on the amount of space they occupy within a multi-tenant building or assumes full responsibility in a single-tenant property. Tax rates can fluctuate, and any increases are typically passed onto the tenant, so it’s important to consider potential increases over time.
- Insurance – The tenant contributes to the cost of insuring the property, ensuring coverage for risks like fire, natural disasters, and liability claims. The exact expenses tenants are responsible for will depend on the terms outlined in the lease agreement and the type of property being rented. Tenants may also carry their own liability and business insurance separate from the landlord’s property insurance policy.
- Maintenance & Repairs – Unlike other lease structures where landlords handle property upkeep, NNN tenants often take responsibility for repairs, general maintenance, and, in some cases, structural elements like roofing and HVAC systems. That said, structural components are typically still the landlord’s responsibility unless specifically negotiated otherwise. The overall expense can be substantial, especially if the building requires frequent repairs or major upkeep.
Because tenants take on these additional costs, landlords typically set a lower base rent than they would with other lease structures. While this can be appealing to tenants looking for reduced upfront costs, the long-term financial obligations of taxes, insurance, and maintenance should be carefully considered before signing an NNN lease. Understanding the scope of these responsibilities and factoring them into the overall business budget is essential for tenants looking to avoid unexpected financial strain.
What Sets an NNN Lease Apart from Other Lease Agreements?
The way costs are divided between landlords and tenants can differ significantly across various commercial lease agreements. The main difference with an NNN lease is that tenants take on additional financial responsibilities beyond rent, and while other lease structures may include some shared expenses, an NNN lease places a greater financial burden on the tenant. Understanding these distinctions is crucial for businesses deciding which lease type best aligns with their budget and long-term goals.
Here’s how an NNN lease compares to other common lease agreements:
- Gross Lease – A simple lease structure in which the tenant pays a set monthly rent while the landlord handles all major property expenses, such as taxes, insurance, and maintenance. It provides predictability for tenants, as they won’t face fluctuating operating costs or increases. However, because the landlord assumes more financial responsibility, the base rent is typically higher than in an NNN lease.
- Modified Gross Lease – A hybrid lease structure that combines elements of both a gross lease and a Triple-Net (NNN) lease. The tenant and landlord negotiate how expenses are divided, often with the tenant paying for utilities, janitorial services, and minor maintenance while the landlord continues to cover larger expenses like property taxes, insurance, and major repairs. This structure offers flexibility, as tenants can take on some costs while avoiding full responsibility for the entire property.
- NNN Lease – This lease structure requires the tenant to take on property taxes, insurance, and maintenance costs, rather than the landlord covering these expenses. Because the tenant bears these additional expenses, the base rent is often lower than in Gross or Modified Gross Leases. That said, tenants must budget for potentially fluctuating expenses, which can add up over time. This lease type is common in standalone retail locations, shopping centers, and multi-tenant office spaces.
Choosing between these lease types depends on the tenant’s financial strategy, risk tolerance, and desire for control over the property. While a gross lease provides cost certainty, an NNN lease offers potentially lower upfront rent but requires careful financial planning due to variable expenses.
Why Do Landlords Offer NNN Leases?
NNN leases are a strategic choice for landlords because they reduce financial risks and operational responsibilities. By transferring property-related expenses to tenants, landlords can maintain steady income without the unpredictability of fluctuating costs.
Here’s why many landlords prefer NNN leases:
- Predictable Revenue – Since tenants cover property taxes, insurance, and maintenance, landlords receive a consistent income stream without unexpected deductions for property expenses.
- Lower Management Burden – With tenants handling maintenance and repairs, landlords don’t have to oversee day-to-day property upkeep, making it a more hands-off investment strategy.
- Attractiveness to Investors – Commercial properties with NNN leases are appealing to investors because they provide stable, long-term income with minimal landlord involvement. This structure is especially appealing to real estate investment trusts (REITs) and private investors looking for a steady income with minimal management responsibilities.
- Risk Reduction – Property tax increases, insurance premium hikes, and routine maintenance costs are the tenant’s responsibility, shielding landlords from rising expenses that could otherwise eat into their profits. However, in some leases, landlords may still be responsible for major structural repairs (e.g., roof or foundation) unless otherwise negotiated.
Because of these benefits, NNN leases are widely used in retail properties, fast-food chains, corporate office spaces, and industrial buildings. While tenants must carefully assess the financial implications, landlords view this structure as an effective way to maximize investment returns with fewer responsibilities.
The Benefits of an NNN Lease for Tenants
While NNN leases are often seen as landlord-friendly, they also offer key advantages for tenants—especially businesses looking for a long-term location with lower base rent. Here’s why an NNN lease might be worth considering:
- Reduced Base Rent – Because tenants cover costs such as property taxes, insurance, and maintenance, landlords typically offer lower base rent than in a gross lease. This structure can make it easier for businesses to secure prime commercial space in high-demand areas, though tenants should carefully evaluate the total cost of occupancy rather than just the base rent.
- Steady Location – NNN leases are often structured as long-term agreements (typically 5 to 20 years), allowing businesses to establish themselves in a consistent location without frequent lease renegotiations. This stability is particularly beneficial for franchises, retail businesses, and corporate offices that depend on long-term location security. However, tenants should review escalation clauses and renewal terms to fully understand their financial commitments.
- Greater Control Over the Property – With maintenance responsibilities shifting to the tenant, businesses have more say in how the property is managed. Instead of relying on a landlord’s maintenance schedule, tenants can address repairs promptly and ensure the space aligns with their operational needs and brand standards. This is especially valuable for businesses that rely on customized environments, such as restaurants, medical offices, and retail stores.
- Predictable Operating Environment – Unlike some lease structures where landlords can increase rent unpredictably to offset rising costs, NNN leases provide tenants with direct oversight of operating expenses. However, because costs like property taxes, insurance, and maintenance can fluctuate, tenants must carefully analyze historical cost trends and budget for potential increases over time.
For the right tenant, an NNN lease offers a mix of affordability, stability, and control—key factors in building a long-term business strategy.
The Risks and Responsibilities of an NNN Lease
Despite its advantages, an NNN lease comes with added financial obligations that tenants must evaluate carefully. These responsibilities can lead to unexpected expenses, making it crucial to assess potential risks before signing.
- Unexpected Costs – Property taxes and insurance premiums are subject to change, and tenants must be prepared for possible increases. A sudden tax reassessment or a rise in insurance rates could significantly impact a business’s budget. Unlike fixed-rent agreements, NNN leaseholders bear the burden of these fluctuations.
- Maintenance Responsibilities – In an NNN lease, maintenance obligations extend beyond routine repairs—tenants are often responsible for HVAC servicing, plumbing, and parking lot upkeep. However, responsibility for major structural elements like the roof and foundation varies by lease agreement. If a property requires frequent repairs or significant upkeep, these costs can accumulate rapidly. Without proper budgeting, a tenant could face substantial, unplanned expenses.
- Long-Term Commitment – Many NNN leases span 10+ years, limiting a business’s ability to relocate, downsize, or expand. Breaking an NNN lease can be costly, often requiring a lease buyout or subleasing (if permitted by the landlord). Businesses should carefully align lease terms with their long-term growth strategy before committing.
- Complex Lease Agreements – NNN leases tend to be more complex than standard lease structures, often containing detailed clauses outlining tenant responsibilities and expense breakdowns. Without careful review and negotiation, tenants could agree to unfavorable terms that significantly increase their financial burden. Key areas to assess include expense caps, maintenance obligations, and escalation clauses. Seeking legal and financial guidance before signing can help avoid costly surprises.
For businesses considering an NNN lease, understanding both the financial and operational commitments is essential. What may seem like a cost-effective option upfront can become a major burden if expenses aren’t managed properly.
What Arizona Tenants Should Consider Before Signing an NNN Lease
Arizona’s commercial real estate market, particularly in Phoenix, Scottsdale, and Tucson, offers many NNN lease opportunities. Before committing to a lease, tenants should carefully review all terms and financial obligations to prevent unexpected expenses.
- Breakdown of Costs – It’s not enough to focus on the base rent—tenants need a complete financial picture. Request an estimate of property taxes, insurance premiums, and expected maintenance costs. If possible, review historical tax and insurance data for the property to anticipate future increases.
- Maintenance Responsibilities – Clearly define which maintenance tasks fall under the tenant’s obligations. Is the tenant liable for significant structural repairs, or do those fall under the landlord’s responsibilities? Are maintenance costs shared among multiple tenants, or is each business solely responsible for its space? Clarifying these points in advance can help avoid surprise expenses down the road.
- Future Tax & Insurance Increases – Commercial properties in Arizona are subject to tax reassessments, usually triggered by a property sale or major improvement. Additionally, insurance rates can fluctuate due to market conditions. Tenants should factor in potential increases over the course of the lease and negotiate terms that prevent excessive cost spikes. Some leases may allow for cost caps or limit increases to a certain percentage per year—these protections can be crucial.
- Lease Negotiations – A commercial lease attorney can help tenants identify unfavorable terms and negotiate better conditions. Whether it’s securing a cap on tax increases, reducing liability for structural repairs, or clarifying unclear clauses, professional legal review ensures tenants don’t get locked into an agreement that could become financially unmanageable.
An NNN lease can be a great opportunity for businesses, but only when the terms align with their long-term financial strategy. Taking the time to analyze costs, assess risks, and negotiate favorable terms will set tenants up for success in Arizona’s competitive commercial real estate market.
Need Legal Guidance for Your NNN Lease? Gottlieb Law Can Help
Signing an NNN lease in Arizona is a major financial commitment. Before committing to a lease, it’s crucial to evaluate potential risks and work out terms that protect your financial and legal interests. Gottlieb Law has substantial experience in commercial lease agreements, helping tenants secure fair contracts that align with their business goals.
Contact Gottlieb Law today at 602-899-8188 to schedule your initial consultation or use our Contact Us page. Our experienced commercial real estate attorneys routinely assist commercial landlords and tenants with commercial lease agreements in Arizona.