Triple Net, Double Net, Absolute Net, Modified Gross: The Actual Definitions

TL;DR

The four terms in the title describe how operating expenses are allocated between landlord and tenant. Triple net (NNN) means the tenant pays property taxes, insurance, and CAM (the three "nets"). Double net (NN) means tenant pays taxes and insurance; landlord retains CAM and structural responsibility. Absolute net is "tenant pays everything including roof, structure, parking lot replacement, and the building if it falls down" — a true bondable lease. Modified gross means most expenses are bundled into base rent, with limited pass-throughs over a base year.

These terms are routinely used inconsistently in marketing materials. The lease document is the single source of truth. This post is the cheat sheet for what each term should mean — and the traps when the document doesn't match the marketing.

The Four Definitions, Cleanly Stated

Triple Net (NNN)

Tenant is responsible for paying:

• Real estate taxes (property tax, school tax, special assessments)
• Insurance (typically property, sometimes liability — varies)
• Common Area Maintenance (CAM) (parking lot, landscaping, common-area utilities, common-area cleaning, and in many leases, structural repairs)

Landlord is responsible for paying:

• The mortgage and equity return
• In some "true NNN" structures, structural / capital responsibilities (roof and structure)

The classic ambiguity in "NNN" is whether roof and structure sit with landlord or tenant. In Stop & Shop / CVS / Walgreens-style net lease deals where the lease is intended to be "true triple net," roof and structure typically sit with the tenant. In smaller-format retail (especially in shopping centers), roof and structure may sit with the landlord even though the deal is marketed as NNN.

Practical underwriting check: read the lease section titled "Repairs and Maintenance" or "Repairs by Landlord vs Tenant." Don't rely on "NNN" in the OM headline.

Double Net (NN)

Tenant pays:

• Real estate taxes
• Insurance

Landlord pays:

• CAM
• Roof and structure
• Capital replacements

NN is far less common than NNN in the freestanding-tenant net lease space, but it shows up in some restaurant ground-lease structures and in older shopping-center anchor leases where the original developer wanted to retain control of the parking lot and common areas.

When you see "NN" in marketing material, the underwriting question is: what's the landlord CAM exposure? In a strip center, this can be material — landscaping, lot maintenance, and exterior cleaning can run $0.50-$1.50 per sq ft per year depending on the asset. That's a real haircut to NOI vs. a true NNN comp.

Absolute Net (sometimes "bondable net" or "true net")

Tenant pays everything. Period. Including:

• Taxes, insurance, CAM
• Roof, structure, parking lot
• Capital replacements
• Restoration after casualty (if not fully insured)
• In some lease forms, even the building itself if a casualty isn't fully covered (this is why it's called "bondable" — the rent obligation continues regardless)

Absolute net is the theoretical ideal for net lease investors because it removes virtually all landlord operating risk. In practice, it's most common in long-term sale-leaseback structures with investment-grade tenants (e.g., a Walgreens ground lease, certain Dollar General build-to-suit deals, some FedEx Ground deals).

Verify: look for the casualty / condemnation clauses. A truly bondable lease will say the tenant is obligated to rebuild after most casualty events at the tenant's cost (with insurance proceeds applied). A non-bondable absolute net lease may give the tenant termination rights after major casualty.

Modified Gross

Most expenses are bundled into base rent, with limited pass-throughs over a "base year." Common in office leasing, less common in retail / freestanding net lease.

Tenant pays:

• Base rent (which the landlord uses to cover expenses, debt service, and equity return)
• Pro-rata share of expense INCREASES over a base year — e.g., if base year operating expenses are $8/sf and they grow to $9.50/sf in year 3, tenant pays the $1.50 difference

Landlord pays:

• Base year operating expenses
• All capital expenditures and structural costs

Modified gross is structurally an office-leasing convention. In freestanding net lease underwriting it rarely appears — but watch for it in mixed-use deals (e.g., a multi-tenant retail strip with an office component upstairs) where the upstairs tenant may be on modified gross while the ground floor tenants are on NNN.

The Big Five Mismatches Between OMs and Actual Leases

These are the inconsistencies we see most often when we compare the OM rep to the actual lease document.

1. "NNN" deal, but landlord eats roof and HVAC capital

Many shopping center anchor leases marketed as "triple net" have a separate HVAC and roof allowance clause, where the landlord agrees to fund some portion of replacements over a defined period. This is fine on its own, but the underwriting impact is real: a $400,000 roof replacement at year 12 of a 15-year lease is a major number that doesn't appear in the OM cash flow.

Where to look in the lease: "Maintenance and Repairs," "Capital Improvements," "Reserves" sections. Also any LOI amendments or estoppel certificates that may have modified original terms.

2. CAM caps that the OM ignores

Some retail leases include CAM caps — annual increases on controllable CAM are capped at, say, 4% per year compounded. If actual CAM expenses inflate faster, the landlord absorbs the overage.

Underwriting impact: in a high-cost market (CA, NY metro, Chicago), CAM growth has commonly exceeded 5% in recent years. A 4% cap on a $4/sf CAM bill leaves the landlord absorbing $0.04-0.08/sf per year, growing to a meaningful number over a 10-year hold.

3. Insurance gaps in "tenant pays insurance" leases

Many leases require the tenant to maintain "all risk" or "casualty" insurance, but don't require the tenant to name the landlord as additional insured at coverage limits sufficient to make the landlord whole in a major loss. The lease may also have a subrogation waiver that effectively requires both parties to look only to their own insurance.

Practical question: is there a flood / earthquake / windstorm gap that the landlord would have to fund post-loss? In Florida, this is now a primary underwriting risk (named-storm deductibles can be 5-10% of TIV).

4. Real estate tax pass-through ambiguities

"Tenant pays taxes" sounds simple. In practice:

• Increases due to a sale (Prop 13 reset in CA, Prop 8 in some other states) — does the lease pass these through? Increasingly important when the lease was signed under one ownership and a new buyer triggers reassessment.
• Special assessments (e.g., a new BID, infrastructure bond, school district assessment) — pass-through or landlord-absorbed?
• Tax appeal costs — who pays the consultant who appeals, and who keeps the savings?

5. "Triple net" anchor leases with side letters

In many older shopping-center anchor leases (think the original Walgreens/CVS/Lowe's leases from 1995-2010), the printed lease may say "triple net" but a side letter modifies the deal — e.g., the landlord agreed to a one-time TI allowance, a percentage rent waiver, or a CAM credit. These side letters survive into estoppel certificates and follow the lease through ownership changes.

Practical step: request the estoppel certificate from the tenant. Compare it line by line to the original lease. The deltas are where the side letters live.

How to Use This

When underwriting a deal:

1. Don't underwrite from the OM headline. Start with the lease document, then map back to OM claims.
2. Build your operating expense model from the lease, not from the OM's "below NOI" line. The lease tells you who's actually responsible for each expense category.
3. Discount the cap rate for any structural ambiguity. A "NNN" deal where the landlord ends up with roof / HVAC exposure is structurally NN, and should price accordingly (typically 25-50 bps wider depending on tenant credit and lease term).
4. In your final underwriting memo, include a one-line statement of the actual structure — e.g., "Marketed as NNN; lease analysis confirms tenant responsibility for taxes/insurance/CAM and roof; landlord retains structural foundation only."

These terms are inherited from older lease forms and used inconsistently across the industry. The discipline is to read each lease as if you've never seen the term "NNN" before — and let the document tell you the structure.