The term “triple net lease” (NNN) comes up often in commercial real estate, but many residential-focused investors have only a vague idea of how it works. In a climate where industrial properties in the Greater Toronto Area (GTA) are attracting increasing attention, understanding NNN leases is crucial. For landlords, these types of leases can deliver significantly more predictable returns and fewer headaches compared to typical residential rentals. For businesses, triple net leases bring a host of operational advantages—and a few responsibilities.
If you’ve been exploring the industrial sector, here’s what you need to know about triple net leases, why they’re so popular, and how Industria helps both landlords and tenants navigate them successfully.
1. What Is a Triple Net Lease?
A triple net lease is a commercial lease structure where the tenant pays three major expenses—property taxes, building insurance, and maintenance—on top of the base rent. In most residential leases, these costs (or at least a portion of them) are shouldered by the landlord. But in the industrial world, the NNN lease model is common, if not standard.
How It Differs from Other Lease Types
- Gross Lease: The tenant pays one lump sum, and the landlord uses that to cover property taxes, insurance, maintenance, and sometimes even utilities.
- Modified Gross Lease: The tenant may pay for certain expenses directly (e.g., utilities), while the landlord handles others (e.g., insurance, property tax).
- Triple Net Lease: The tenant pays almost all operating expenses associated with the property. The landlord collects a stable, predictable net rent.
2. The Appeal of Triple Net Leases for Industrial Properties
Predictable Cash Flow
Industrial landlords often favor NNN leases because it locks in a set base rent while shifting variable property costs to the tenant. If property taxes spike or building insurance premiums rise, the landlord’s cash flow isn’t disrupted. This financial predictability is especially valuable in a fast-moving market like the GTA, where commercial expenses can fluctuate.
Less Management Headache
Because the tenant typically coordinates and covers maintenance—from HVAC repairs to routine upkeep—the landlord isn’t fielding constant service calls. While you still need to oversee major structural elements (roof, foundation), day-to-day repairs become the tenant’s responsibility. This is a stark contrast to residential rentals, where landlords often juggle multiple maintenance issues.
Strong Tenant Incentive to Care for the Property
With a triple net lease, the tenant has a vested interest in keeping the building in good shape—after all, they’re the ones paying for maintenance and repairs. This helps preserve or even enhance the property’s condition over time. Tenants operating businesses in these properties also have a reputation to uphold with their own clients and vendors, providing an added incentive for cleanliness and upkeep.
3. Why Tenants Agree to a Triple Net Lease
Operational Freedom
Industrial tenants—manufacturers, e-commerce distributors, trades, and more—often want control over the property’s configuration and maintenance schedule. A triple net lease grants them the operational freedom to manage the space as they see fit, without waiting for a landlord to approve every minor upgrade or repair.
Transparent Expense Control
While it might feel like the tenant is paying more, a well-managed triple net property can give them clear visibility into costs. Rather than paying a single bulk rental rate that might pad the landlord’s overhead, tenants can see each line item—taxes, insurance, and maintenance—and manage or even reduce these costs through efficient operations.
Long-Term Stability
NNN leases in industrial real estate are frequently multiyear, allowing tenants to settle into a space for an extended period. This stability is important for businesses that require specialized buildouts, machinery, or client access points—relocations can be pricey and disruptive. With a longer lease term in place, they can build customer relationships and optimize logistics without frequent moves.
4. Real-World Example: Potential Savings and Gains
Let’s consider a 1,500-square-foot industrial unit in the GTA:
- Base Rent: $20 per square foot = $30,000 per year.
- Property Taxes: $5 per square foot = $7,500 per year.
- Insurance & Maintenance: $3 per square foot = $4,500 per year.
Under a typical gross lease, the landlord might charge $38 to $40 per square foot (i.e., $57,000 to $60,000 total) to cover all these costs while hopefully maintaining a profit. The tenant writes one check, and the landlord is responsible for paying taxes, insurance, and repairs—possibly out of that monthly rent.
However, in a triple net arrangement, the landlord charges a base rent of $20 per square foot (total $30,000), and the tenant separately covers taxes, insurance, and maintenance (another $12,000 total). This ensures the landlord receives a consistent $30,000 net. If taxes or insurance premiums go up, the tenant pays that difference, safeguarding the landlord’s returns.
For the tenant, the costs are similar or slightly lower—if they manage expenses well. They maintain more autonomy over the property and can potentially reduce maintenance or utility costs through efficient strategies.
5. The GTA Factor: Low Vacancy and High Demand
Boosting Landlord Leverage
In the Greater Toronto Area, industrial vacancy rates can hover around 1–2%—incredibly tight by commercial real estate standards. This ongoing shortage is driven by e-commerce growth, last-mile logistics, and diverse manufacturing. Because there are so few high-quality industrial spaces available, landlords often have an upper hand in lease negotiations. Tenants are more willing to sign NNN leases if it means securing a strategic location with good access to major highways.
Consistent Demand = Steady Rents
These market dynamics also keep rental rates stable or rising. Even if the broader economy slows, businesses often cannot afford to lose or relocate their industrial space—shuttering a manufacturing line or a distribution hub is far more complicated than giving up a small office. That underlying stability means that NNN landlords in the GTA can benefit from reliable returns.
6. Triple Net Leases vs. Residential Rentals
Legal and Regulatory Differences
Residential real estate in Ontario is governed by stringent tenant-protection laws, making it more challenging to evict or raise rents quickly. In commercial scenarios, legal frameworks allow for more negotiated terms. If a tenant defaults, a commercial landlord can typically take action faster than in a residential context.
Cash Flow Potential
With industrial triple net leases, owners often see higher monthly net returns per dollar invested compared to many residential properties, once you account for the landlord’s out-of-pocket costs and tenant turnover. While every investment carries risks, industrial’s strong demand and landlord-friendly structure can tip the scales in favor of consistent cash flow.
Portfolio Diversification
For residential-heavy investors, exploring the industrial sector can add a level of diversification. Different economic forces drive industrial performance—often less tied to consumer confidence and more influenced by business activity and e-commerce trends. By blending residential and industrial assets, you protect against downturns in a single market segment.
7. How Industria Can Help
Though triple net leases offer outstanding advantages, they also involve careful structuring to ensure both parties benefit. As specialists in GTA industrial real estate, Industria helps:
- Landlords craft fair, profitable NNN agreements that protect their interests and ensure smooth tenant relations.
- Tenants evaluate the total cost of occupancy (TCO) so they can budget property taxes, insurance, and maintenance effectively—leading to fewer surprises down the road.
- Investors discover new opportunities in industrial condos or standalone properties where NNN leases provide stable returns.
From negotiating terms to connecting clients with commercial-focused legal counsel, Industria supports every step of the triple net journey.
8. Conclusion: Embracing the NNN Advantage
In a competitive market like the GTA, landlords who hold high-quality industrial properties can lock in long-term security through a triple net lease. By transferring variable expenses to the tenant and providing more autonomy in return, NNN agreements often result in win-win relationships—the tenant optimizes the space for their business, while the landlord enjoys predictable income and minimal maintenance obligations.
For residential landlords wary of tenant disputes and maintenance calls, shifting some investments into industrial triple net leases is an enticing strategy. With e-commerce fueling tenant demand and vacancy rates at record lows, it’s clear why industrial landlords often find themselves at an advantage.
