In our third installment, we will look at the Double Net Lease:
A double net lease is a lease agreement in which the tenant is responsible for both property taxes and premiums for insuring the building. Unlike a single net lease, which only requires the tenant to pay property taxes, a double net lease passes more expenses along in the form of insurance payments. The landlord is still held responsible for structural maintenance expenses. Each month, the landlord receives the base rent plus the additional payments.
Breaking Down Double Net Lease
Double net leases are most commonly found in commercial real estate. For commercial properties with multiple tenants, such as a shopping mall, taxes and insurance fees may be assigned to the individual tenants on a proportional basis. Even if property taxes and building insurance premiums are considered the responsibility of the tenant, owners of commercial property should have property taxes passed through themselves to ensure that they are aware of payment issues.
Double Net Lease vs. Other Types of Net Leases
In a single net lease, the lessee or tenant is responsible for paying property taxes. Single net leases are not common
A triple net lease is a lease agreement in which the tenant or lessee agrees to pay all real estate taxes, building insurance and maintenance, in addition to normal expected costs under the agreement (rent, utilities, etc.). In such a lease, the tenant or lessee is also responsible for all costs associated with the repair and maintenance of any common area. This form of lease is common for freestanding commercial buildings, but it can also be used in single-family residential rental leases. When maintenance costs are higher than expected, tenants under triple net leases frequently attempt to get out of their leases or obtain rent concessions. For this reason, many landlords prefer bondable net leases, which is a type of triple net lease stipulating it cannot be terminated before its stated expiration date and the rent amount cannot be altered for any reason, including unexpected and significant increases in ancillary costs.
The Difference Between Gross and Net Commercial Lease
In contrast to net leases, a typical commercial gross lease, the landlord pays all of the building’s maintenance, insurance, and property taxes. The costs of these services are often reflected in higher monthly rent. It’s common for the tenant to accept reasonable caps on the landlord’s exposure to the tenant’s use of these services and utilities. Often, parties will agree to a “base year” estimated expense, with the landlord billing the tenant for any overage.