Double Net Lease (NN lease) Explained
In this article, we explain what are double net leases, and articulate the difference among single, double and triple net leases.
What is a Double Net Lease?
A double net lease, otherwise known as a NN lease, is a type of leasing agreement where the tenant is required to pay property tax and insurance premiums for the property. These form two of the three main expenses of a property. However, the landlord is still liable for other maintenance expenses associated with the property.
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Where and how double net leases are used
A double net lease is most commonly used for commercial leases. While not a required part of double net leases, the landlord may offer a lower rental rate because of the additional cost in the form of additional property taxes and insurance premiums incurred by the tenant in a double net lease.
Although these expenses are borne by the tenant in a double net lease, the payments go through the landlord. This is to facilitate the tracking and early warning on missed payments on the part of the tenants.
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Comparison: double net lease versus triple net lease versus single net lease
The three major expenses associated with a property are property tax, utilities and insurance premium.
In a single net lease, the tenant is responsible for only one of the main property expenses - property tax. This is the least common compared with double net lease or triple net lease.
With a triple net lease, the tenant is responsible for all expenses generated by the property, (including property tax, insurance premium, maintenance fees and utilities) in addition to the base rental charges. A triple net lease may also hold the tenant liable for maintenance fees for common areas within the property. Whilst most commonly used in commercial leases, it is sometimes used in rental leases for single-family residential units.
The following table illustrates the differences amongst the three types of net leases.
| Type of lease | What is covered | When is it typically used |
|---|---|---|
| Single net lease | - Property taxes | Commercial properties but Single Net Leases are the least common out of the three |
| Double net lease | - Property taxes - Insurance taxes |
Commercial properties such as: - Office buildings - Shopping malls - Industrial parks |
| Triple net lease | - Property taxes - Insurance premiums - Maintenance costs |
Longer term leases (10-15 years) Larger commercial properties such as: - Office buildings - Shopping malls - Industrial parks - Buildings operated by large stable businesses |
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Gross commercial lease versus net commercial lease
In any net commercial lease, such as a double net lease, the tenant is responsible for one or more of the property’s relevant expenses.
In a gross commercial lease, it is the landlord’s duty to pay these additional expenses, with the tenant only being responsible for paying rent to the landlord to lease the property. Therefore, this often comes with higher rental rates and limits on use of utilities or services. In the event of excessive use of these utilities or services, the landlord reserves the right to impose additional charges to the tenant.
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Disclaimer: The information and/or documents contained in this article does not constitute financial advice and is meant for educational purposes. Please consult your financial advisor, accountant, and/or attorney before proceeding with any financial/real estate investments.