What Is a Double Net Lease & How Does It Work?

Commercial real estate leases are agreements between property owners and businesses occupying their spaces. These contracts establish the financial responsibilities and operational duties for both landlords and tenants. Understanding commercial lease structures is important for businesses to assess financial commitments and potential risks.

Defining a Double Net Lease

A double net (NN) lease is a commercial rental agreement where the tenant assumes financial obligations beyond the base rent. The tenant is responsible for paying two “nets”: property taxes and property insurance. The landlord typically retains responsibility for major structural maintenance of the building, including the roof, walls, and foundation.

This arrangement positions the double net lease as a middle ground among commercial lease types. It requires more tenant responsibility than a gross lease, where the landlord covers most operating expenses. However, it involves less tenant financial obligation compared to a triple net lease. The specific division of responsibilities, particularly regarding common area maintenance (CAM) expenses, can be negotiated within the lease terms.

Tenant and Landlord Financial Obligations

Under a double net lease, tenants assume financial obligations beyond base rent. They are responsible for their pro-rata share of property taxes and building property insurance premiums. For properties with multiple tenants, property taxes are calculated based on the tenant’s rented square footage relative to the total rentable area. For example, a tenant occupying 10% of a building would pay 10% of the property tax bill.

Property insurance paid by the tenant covers the building’s structure against hazards like fire or flood, but typically excludes landlord’s liability insurance. Tenants are also responsible for their own utilities, such as electricity, water, and gas, within their leased space. Interior maintenance and repairs of the leased premises, including items like flooring or light fixtures, fall to the tenant.

In contrast, the landlord in a double net lease remains responsible for significant structural repairs, including the roof, foundation, and exterior walls, which are crucial for the building’s integrity. Landlords are also responsible for common area maintenance (CAM) in multi-tenant properties. CAM expenses cover the upkeep of shared spaces like parking lots, landscaping, lobbies, shared utility costs for common areas, security systems, and janitorial services for these common areas. While CAM is generally a landlord’s responsibility, the precise items included can be subject to negotiation and defined within the lease agreement.

Comparing Commercial Lease Types

At one end is the gross lease, also known as a full-service lease, where the tenant pays a single, all-inclusive rent. Under this arrangement, the landlord covers nearly all operating expenses, including property taxes, insurance, maintenance, and utilities.

Moving along, a single net (N) lease requires the tenant to pay base rent plus property taxes. The landlord retains responsibility for property insurance, structural maintenance, and common area maintenance. A double net (NN) lease places responsibility for property taxes and property insurance on the tenant, in addition to base rent. The landlord manages structural maintenance and sometimes common area maintenance.

Further along the spectrum is the triple net (NNN) lease, which represents the highest level of tenant financial responsibility. In a triple net lease, the tenant pays base rent along with property taxes, property insurance, and all operating expenses, including common area maintenance and often structural repairs. This type of lease shifts most property-related costs to the tenant. A modified gross lease acts as a hybrid, blending elements of gross and net leases. Under this arrangement, some operating expenses are passed through to the tenant, but not all, or only specific ones, offering more flexibility than a pure gross lease.