Modified NNN Lease (NN)
A lease structure where the landlord retains responsibility for some property expenses, typically roof and structure, while the tenant pays taxes, insurance, and CAM.
A Modified NNN Lease (also called "Double Net" or "NN") is a lease structure that falls between a gross lease and absolute NNN. The tenant pays most operating expenses, but the landlord retains responsibility for certain capital items—typically roof and structural repairs. **Common Modified NNN Structures:** **Landlord Responsibilities (vary by lease):** - Roof replacement (often with cap) - Structural repairs (foundation, load-bearing walls) - HVAC replacement (sometimes) - Parking lot major repairs **Tenant Responsibilities:** - Property taxes - Building insurance - Routine maintenance - CAM costs - HVAC maintenance - Minor repairs **Why Modified NNN Exists:** Some tenants—particularly smaller operators or non-national chains—cannot or will not accept full property responsibility. Landlords accept some obligations to attract broader tenant pools. **Pricing Implications:** Modified NNN properties typically trade at 50-100 basis points higher cap rates than Absolute NNN to compensate landlords for retained risk. For example: - Absolute NNN (Walgreens): 5.25% cap - Modified NNN (Regional tenant): 6.25% cap **Investor Considerations:** - Must budget for potential capital expenses - Property management may be required - Insurance and reserve requirements differ - Financing may be more complex
Frequently asked questions
What is the difference between NNN and Modified NNN?
In a true NNN or Absolute NNN lease, tenants are responsible for all expenses including roof and structure. In a Modified NNN, the landlord retains responsibility for some capital items—typically roof and structural repairs—while tenants still pay taxes, insurance, and maintenance.
Why do Modified NNN properties have higher cap rates?
Modified NNN properties trade at higher cap rates (50-100+ basis points higher) because landlords retain some expense risk. The higher yield compensates investors for potential capital expenditures and the additional management required.
Related: absolute-nnn-lease, triple-net-lease, cap-rate, cam