Triple net leases require tenants to pay their proportionate share of property taxes, insurance, and common area maintenance (CAM) on top of base rent. While these expense categories seem straightforward, they often contain charges that tenants do not expect and that may not comply with their lease terms.
Common Hidden NNN Expenses
Many tenants sign a triple net lease understanding that they will share in operating costs. What they often do not realize is how broadly landlords can interpret operating expenses. Common hidden charges include:
- Legal and accounting fees incurred by the landlord for property management
- Marketing or promotional expenses for the property or shopping center
- Costs related to vacant spaces that are allocated across occupied tenants
- Landlord's corporate overhead charged as a management fee
- Reserves or contingency funds built into estimated charges
Understanding what landlords can include in CAM charges is the first step toward identifying charges that may exceed your lease terms.
Maintenance vs. Capital Costs
One of the most significant sources of hidden costs in NNN leases is the distinction between maintenance and capital expenditures. Routine maintenance — such as landscaping, cleaning, and minor repairs — is typically a permitted CAM expense. Capital improvements — such as roof replacements, parking lot resurfacing, or HVAC system upgrades — are generally the landlord's responsibility.
However, landlords sometimes classify capital work as maintenance to pass the cost through to tenants. In other cases, they amortize capital expenses over a period of years and include the annual amortization as a CAM charge. Whether this is permitted depends entirely on your lease language. For more on this topic, see our guide on whether landlords can charge capital expenses to tenants.
CAM Pass-Throughs
CAM pass-throughs are the operating expenses that landlords allocate to tenants based on their proportionate share of the property. These charges appear on the annual CAM reconciliation statement and can include dozens of individual line items.
Hidden cost risks in CAM pass-throughs include:
- Management fees calculated at a higher percentage than the lease specifies
- Expenses for services that benefit only specific tenants being allocated to all tenants
- Year-over-year increases that exceed any CAM cap defined in the lease
- Charges for items explicitly excluded in the lease's operating expense definitions
Property Tax Adjustments
Property taxes in NNN leases are passed through to tenants based on their pro rata share. Hidden cost risks arise when:
- The landlord does not pass through tax refunds or appeal savings to tenants
- Tax reassessments resulting from the landlord's own improvements are allocated to tenants
- The pro rata share calculation uses incorrect square footage or includes areas not covered by the lease
- Supplemental tax bills are passed through without adjusting for exemptions
Insurance Allocations
Insurance is the third leg of the NNN lease. Landlords carry property insurance and allocate the cost to tenants. Hidden costs can appear when:
- The landlord adds coverage types not required by the lease, such as earthquake or flood insurance in areas where it is optional
- Insurance costs for the landlord's own improvements or equipment are included in tenant pass-throughs
- Premiums increase significantly without documentation or explanation
- The landlord does not shop for competitive rates, resulting in above-market premiums passed to tenants
For a comprehensive overview of all NNN expense categories, see our guide to triple net lease expenses explained. If you suspect hidden costs in your lease, our CAM audit guide walks through the process of reviewing your charges step by step.