Watch Out for the Triple Net Lease
A Triple Net Lease can turn a manageable rent situation into a financial nightmare for small businesses. Here's what you need to know before you sign.
You're ready to renew your commercial lease. Your landlord hands you a new agreement with this clause:
Then the landlord tells you: if you don't sign, you have 60 days to vacate.
Would you sign it?
This actually happened to a Bracebridge, Ontario business.
What Is a Triple Net Lease?
A Triple Net Lease (NNN) is a commercial lease where the tenant takes on financial responsibilities well beyond rent. You're covering three "nets" — insurance, property taxes, and maintenance — on top of your base rent. These leases typically lock tenants in for 10 to 15 years.
That sounds expensive. But here's the real problem: while you're paying all three nets, the landlord still holds the power. There are no regulations in any Canadian province preventing a landlord from including whatever extra costs they want under those categories.
A Real-Life Example
Krista Mansour, owner of Footprints on Muskoka, ran her Bracebridge retail shop for 5 years. Her original lease was straightforward: rent plus utilities.
When it came time to renew, the landlord offered only a Triple Net Lease. That would make Footprints responsible for rent, utilities, and "common expenses" split between 6 businesses in the building. Those common expenses included:
- Building property tax
- Building insurance
- Maintenance fees
- HVAC & plumbing repairs
- Late fees on property taxes
- Health insurance for the property manager
- Literally anything else
If Krista wouldn't sign, she had 60 days to leave — right in the middle of her peak summer sales season.
"The thing that scares me… the investors have nothing to do with the community. People aren't aware of what they're signing." — Krista Mansour, Footprints on Muskoka
Why Do Triple Net Leases Exist?
TNLs didn't start out as a small business problem. They were designed for large retailers with deep pockets, dedicated legal teams, and access to credit instruments that could help them manage and expense these costs while reducing their own tax burdens.
But now Canadian small businesses are being offered TNLs more often. For landlords — especially investor-landlords — a TNL is a hands-off arrangement. The tenant absorbs the risk and the costs.
The problem is that these investor-landlords often aren't deeply committed to building vibrant local main streets. They may be less willing to offer terms that help long-term small business tenants thrive and serve their communities.
Investing in the social fabric of a community through good jobs and local investment is hard to do when a business can't even project its costs.
What This Means for Small Business Owners
For a small business with limited cash flow — and an owner who might be personally liable for business debt — a Triple Net Lease is a bad deal. Running a small business is already unpredictable enough without hidden costs baked into your lease.
When you're shopping for a new space, be very alert when a TNL is on the table. Read the terms carefully. Don't sign anything that creates unpredictability about your costs, or puts you on the hook for expenses you can't define, don't control, or don't want to pay for.
Lease Negotiation Tips From a Business Owner
It's not always a bad deal. Craig Marentette, owner of BWA member Red Lantern Coffee Co. in Kingsville, ON, has successfully negotiated two commercial leases. Here's what he learned:
1 You don't know what you don't know
Craig's first negotiation happened before he understood the differences between residential and commercial leases. He got lucky — his landlord was equally new to it, and they agreed on simple terms: monthly rent and utilities for Craig, everything else for the landlord.
2 A good lease protects you — and that has value
When that landlord tried to sell the building 1.5 years into a 3-year lease, potential buyers were turned off by Craig's favourable terms — no rent increases, with an option for 3 more years. Craig was eventually bought out of that lease by the building's new buyer.
3 Timing is leverage
Craig's second lease came during the early months of COVID. A nearby cafe had closed with no plans to reopen, and the landlord's space had been empty for 5 months. Craig used his track record — a viable business pre-COVID and through lockdowns — to negotiate strong terms: rent, utilities, and everything inside the building envelope for Craig; taxes, insurance, and the exterior for the landlord.
4 Use windows of opportunity
Nearby business closures, economic downturns, and vacant spaces shift the balance of power. As a business owner, take advantage of these moments to improve your negotiating position.
"Overall, I have been lucky with two reasonable landlords and in my timing of my two lease negotiations to secure positive medium-term leases." — Craig Marentette, Red Lantern Coffee Co.
Have Questions?
We've put together detailed FAQs to help business owners navigate commercial rent, to help elected officials understand the policy landscape, and to help property owners build better tenant relationships.
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