Triple net (NNN) leases are common across office, retail, and industrial properties in the GTA, but the term gets used loosely. Here's what it actually means operationally, and where management most often breaks down.
What "triple net" means
In a triple net lease, the tenant pays base rent plus their pro-rata share of three categories of operating cost:
- Property taxes
- Building insurance
- Common area maintenance (CAM) — landscaping, snow removal, common area utilities, repairs to shared systems, and property management fees where applicable
The landlord's rent is effectively "net" of these costs, since the tenant is covering them directly rather than the landlord absorbing them into a higher base rent.
How pro-rata share is calculated
A tenant's share of the three net categories is typically based on their leased square footage as a percentage of the building's total leasable area. This sounds simple but requires accuracy — an outdated or incorrect square footage figure in the lease abstract compounds into a wrong bill every single month.
Estimated payments vs. annual reconciliation
Tenants typically pay an estimated monthly amount toward taxes, insurance, and CAM based on the prior year's actual costs or a budget projection. At year-end, the manager reconciles the estimate against actual invoiced costs and either bills the tenant for a shortfall or credits an overpayment. This reconciliation is where NNN management most often goes wrong:
- Poor documentation — if the manager can't produce clear, itemized invoices backing every dollar in the CAM pool, tenants have legitimate grounds to dispute the bill.
- Including non-recoverable costs — most leases specify exclusions (capital improvements, for example, are often excluded or amortized differently than routine maintenance). Billing an excluded cost as recoverable creates disputes and potential legal exposure.
- Inconsistent methodology year over year — the calculation approach needs to stay consistent, or be clearly explained when it changes.
What good NNN management looks like in practice
- A clean lease abstract capturing exact recoverable cost categories, exclusions, and the tenant's pro-rata share
- Monthly tracking of actual operating costs against the CAM budget throughout the year, not just at reconciliation time
- A detailed, itemized annual reconciliation statement sent to each tenant with supporting documentation available on request
- A clear, professional process for handling tenant questions or disputes about specific line items
Why this matters more than owners often expect
A poorly managed NNN reconciliation doesn't just create tenant friction — it can mean the owner is quietly absorbing costs that should have been passed through, or facing legal exposure from an inaccurate bill. This is one of the areas where the gap between a mediocre manager and a rigorous one shows up directly in an owner's bottom line.
See how CAM reconciliation is handled on our financial reporting services page, or request an assessment of your current NNN structure.