An absolute net lease, sometimes known as an absolute NNN lease, is one of the strictest forms of commercial leases. In an absolute net lease, a tenant is generally responsible for insurance, taxes, maintenance and minor repairs, as well as larger structural repairs, such as roof replacement.

A conventional triple net lease (NNN lease) has a tenant being responsible for property taxes, insurance premiums and property maintenance costs. In contrast, the absolute net lease includes major building repairs. For investors looking to purchase a commercial property with a tenant in-place, this is a key difference, especially if the building is older and the roof, windows, HVAC system, or other major structural components will need to be replaced during the remaining lease term.

A bond lease, sometimes known as a “hell or high water lease” is an even more extreme form of an absolute net lease. In a bond lease, the tenant is not only responsible for making major structural repairs, but is also responsible for rebuilding the property should an act of God occur. A bond lease tenant is also generally responsible for continuing to pay rent, even if the property is condemned.

The advantages of an absolute net lease are that tenants have more freedom to make alterations and customize space without having to make the substantial capital investment of purchasing a property outright. Tenants may also be able to leverage the added financial responsibility to negotiate lower rents. The addition of property taxes to the borrower’s expenses may even lead to some tax benefits for the tenant. NNN leases also tend to come with protections against tax and insurance increases with the inclusion of caps placed on certain values.

The drawbacks of an absolute net lease are that not all leases advertised as “absolute net” or absolute NNN” have the same elements, and the misreading of a lease could require an investor to make some very expensive repairs a few years down the road. Additionally, a bond lease, sometimes known as a “hell or high water lease” is an even more extreme form of an absolute net lease, and the tenant is not only responsible for making major structural repairs, but is also responsible for rebuilding the property should an act of God occur.

An absolute net lease, sometimes known as an absolute NNN lease, is one of the strictest forms of commercial leases. In an absolute net lease, a tenant is generally responsible for insurance, taxes, maintenance and minor repairs, as well as larger structural repairs, such as roof replacement.

A conventional triple net lease (NNN lease) has a tenant being responsible for property taxes, insurance premiums and property maintenance costs. In contrast, the absolute net lease includes major building repairs. For investors looking to purchase a commercial property with a tenant in-place, this is a key difference, especially if the building is older and the roof, windows, HVAC system, or other major structural components will need to be replaced during the remaining lease term.

A bond lease, sometimes known as a “hell or high water lease” is an even more extreme form of an absolute net lease. In a bond lease, the tenant is not only responsible for making major structural repairs, but is also responsible for rebuilding the property should an act of God occur. A bond lease tenant is also generally responsible for continuing to pay rent, even if the property is condemned. In some cases, a tenant may be able to leave their lease after a condemnation, but not always.

The addition of property taxes to the tenant's expenses may lead to some tax benefits for the tenant. In particular, NNN leases and absolute net leases may be underwritten somewhat more leniently and may require less in replacement reserves. Additionally, NNN leases come with protections against tax increases with the inclusion of caps placed on certain values. Source

The legal considerations of an absolute net lease are similar to those of a triple net lease, but with the added responsibility of major building repairs. In an absolute net lease, a tenant is generally responsible for insurance, taxes, maintenance and minor repairs, as well as larger structural repairs, such as roof replacement. This is a key difference from a triple net lease, which has a tenant being responsible for property taxes, insurance premiums and property maintenance costs.

It is essential to look into the details of the lease to determine which expenses will be the responsibility of the landlord, and which the tenant will need to take care of. Not all leases advertised as “absolute net” or absolute NNN” have the same elements, and the misreading of a lease could require an investor to make some very expensive repairs a few years down the road.

Sources:

• Absolute Net Lease in Commercial Real Estate
• Benefits and Drawbacks of a Triple Net Lease (NNN) in Commercial Real Estate