The concept of a double net lease (NN lease) is increasingly becoming popular among realtors and property owners.
As the name suggests, this type of lease arrangement involves two different rental payments from the tenant: one for the base rent due to the landlord, and a second for some or all expenses related to maintaining and operating the property such as taxes and insurance premiums.
This innovative solution gives landlords more stability in their cash flow while providing tenants better control over their budget due to anaerobic expenses.
In this blog post, we’ll take a deep dive into what double net leases are and how they can be beneficial both to landlords renting out properties as well as tenants who need short-term or long-term facilities.
Don’t Confuse it For Triple Net Lease
While triple net leases are usually granted as low-risk for landlords, essentially restricted by the credit of the tenant, there are other leasing options with fluctuating degrees of risks that may be equally or even more suitable for landlords and their tenants.
Some types of net leases are double net leases – quite popular in commercial rentals. In the double net lease agreement, the resident pays rent, property taxes, and insurance premiums, while the proprietor is responsible for all maintenance and repair costs.
Similarly, as in a single net lease, landlords prefer to have all of the additional payments made directly to them, so that they can manage the tax payments and insurance premiums.
In many big commercial and business properties for rent, the proprietor usually has multiple tenants in the same building, who lease spaces of different sizes.
In this case, each resident is assigned a proportionate amount of the tax and insurance premiums, based on the space percentage they occupy in the building.
We understand those lease agreements can be confusing in their complexity, but without getting to know the specific group of well-known lease types applied to some property, you can end up provided with fewer options as a tenant.
That is why I want to address the double net lease and better explain how it compares to other net lease types.
Double Net Lease Definition
What is the double net lease definition?
NN lease, is an agreement that requires the tenant to pay rent and some operating expenses such as property tax and insurance. This type of commercial real estate leasing allows the landlord to reduce their ownership costs by transferring some of the significant responsibilities of traditional leasing to the tenant.
The cost savings can be substantial for both parties, depending on how well the NN lease terms are negotiated. Double net leases also tend to favor landlords, since most tenants prefer other forms of leasing where they have limited responsibility (e.g., triple net). Double net leases offer fewer rights and more risk for tenants, but can provide a great opportunity for them if managed correctly.
Double Net Lease – Pros and Cons For Landlords
In a double net lease, the owner can pass through a portion of the financial responsibilities for the property taxes and insurance by admonishing them to the tenant.
This also means that the owner doesn’t have to be accounted for property taxes or worry about maintaining them since these arrangements fall under the business responsibilities of the tenant.
As a landlord carrying out an agreement of the NN lease, you are able to control expenses better than in some other lease types. The NN lease also gives more control over structural portions of the property usually linked with some financial responsibilities of maintaining the structural property.
NN Lease – Pros and Cons For the Tenants
The main drawback of an NN lease is that it typically requires the owner to act as a landlord and assume all the financial and logistical responsibilities of maintaining their building.
This means that the property owner plays an active role as a landlord and faces unexpected costs for the upkeep of the property, which can easily lead to profit margins on investment.
When you’re considering an investment opportunity with a double net lease deal in place, it’s important to understand all the details of the agreement, so you know exactly which financial responsibilities will be yours to cover.
Do you need to lease an office, retail or industrial space within a building that is unsuitable and fair-priced? Among the confusing terminology that governs the terms applied to NN lease, there are several other types of contracts you need to be led through.
Understanding all of these labels and what they entail can help you become informed in making decisions about selecting a business location, people to do business with, and types of buildings to settle in.
The double net lease has its advantages and disadvantages for both landlords and tenants, so before entering into this (or any) lease agreement, make sure you understand the nuances as well as costs allocated to each interested party.
The Innovation Property Group is knowledgeable in all types of net leases and has the expertise to guide you through all the pros and cons of your investments to ensure the structure is in-line with what you are trying to accomplish.
