A lease where the tenant pays rent plus the property's operating costs, typically taxes, insurance and maintenance. The exact split is whatever the lease says.
Under a net lease the tenant pays some or all of the building’s operating expenses on top of base rent. The OCC handbook lists taxes, insurance and maintenance as the usual items. It also says that the labels NN, NNN and absolute net have no universally agreed definitions, and that the lease itself has to be read to learn who pays for what. Roof and structure are the usual gray areas.
For a lender, a net lease moves expense risk from the landlord to the tenant, which makes the property’s net operating income steadier. It also concentrates the risk in one question: will this tenant keep paying? The handbook notes that a lower debt service coverage ratio may be prudent for long-term net leases to creditworthy tenants. The reverse also holds. A lease with three years left to a small local tenant will be sized far more cautiously.
Expect the lender to ask for the full lease and amendments, the tenant’s financial statements if available, a tenant estoppel, and the remaining term compared with the loan term.
How it shows up in the data here
Not in the data. No rent rolls or leases are in any public filing on this site, and bank call reports do not separate net leased buildings from other income-producing property. The closest view is the non-owner-occupied balance each bank held, under investor CRE lenders, and recent loans in investor CRE comps.
Go further
- Investor CRE lenders: Banks and credit unions that hold loans on income-producing property.
- DSCR calculator: Coverage on net rent after the costs the landlord still pays.
- DSCR calculator: Cash flow over debt service. Type the cash flow and the loan terms, see the ratio and the cushion before it falls to 1.00x.
- Debt yield calculator: Cash flow over the loan. The one ratio that ignores the rate, the amortization and the cap rate.
- Investor commercial real estate loan checklist: On an investor property the rent pays the loan. The package is the evidence for the rent: who pays it, for how long, what it costs to collect, and who stands behind the borrower if it stops.
- How bankers evaluate a commercial loan deal: A credit officer asks one question five ways: how will this loan be repaid, and what happens if it is not? Knowing the five tests lets you size a request before you send it.
Related terms
- Non-owner-occupied commercial real estate: Commercial property where half or more of the loan's repayment comes from rent paid by tenants unrelated to the owner.
- Net operating income (NOI): A property's annual income minus its operating expenses, before loan payments, income taxes and depreciation. It is the top number in DSCR and debt yield.
- Debt service coverage ratio (DSCR): Net operating income, or business cash flow, divided by the loan payments due in a year. It shows how many dollars come in for each dollar of debt service.
- Ground lease: A long lease of land on which the tenant owns or builds the improvements. A lender to the tenant takes a lien on the leasehold, not on the land.
- Tenant estoppel certificate: A signed statement from a tenant confirming the terms of its lease and that the lease is in effect, which a lender or buyer can then rely on.
- Subordination, non-disturbance and attornment (SNDA): An agreement in which a tenant puts its lease behind the lender's mortgage, the lender agrees to honor the lease after a foreclosure, and the tenant agrees to treat the new owner as landlord.
Sources
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.