Double Net Lease (NN Lease): What It Is and How It Works

When it comes to commercial real estate leasing, understanding the different types of leases is essential for both landlords and tenants. One common lease arrangement is the Double Net Lease, often abbreviated as NN Lease. This type of lease strikes a balance between a full-service lease and a triple net lease, making it popular in many commercial property agreements.

A double net lease (NN lease) is a common form of commercial lease where the tenant agrees to pay the base rent, plus two significant ongoing expenses: property taxes (business rates in the UK) and building insurance premiums.

In this blog, we'll explore how a Double Net Lease works, the responsibilities it involves, and the key advantages and disadvantages for both parties. Whether you're a business owner looking to rent commercial space or a property investor, knowing these details will help you make informed decisions.

For personalised legal guidance on double net leases or any commercial lease matter, call Moeen & Co. Solicitors today on 0203 959 7755 or email info@moeenco.com.

Table of Contents

What is a Double Net Lease?

A double net lease (NN lease) is a type of commercial lease where tenants pay base rent plus two key expenses, such as property taxes and insurance premiums.

Unlike a triple net lease, where the tenant usually covers all operating expenses, including maintenance, in a double net lease, the landlord remains responsible for structural repairs and maintenance of the property.

How Does a Double Net Lease Work?

In a double net lease (NN lease), tenants are responsible for paying their share of business rates and building insurance, while landlords handle structural repairs.

This lease type is common in retail units, offices, and industrial spaces. Because tenants cover some operating costs, landlords often charge a lower base rent compared to gross leases.

Tenants should budget carefully for these variable expenses and understand their responsibilities fully before signing.

Key Components of a Double Net Lease (NN Lease)

A double net lease involves several important parts that both tenants and landlords should understand clearly. It includes:

1. Base Rent
2. Property Taxes
3. Building Insurance
4. Landlord Responsibilities

1. Base Rent

This is the fixed monthly amount the tenant pays to occupy the property. It's the starting point of the lease cost before any additional expenses.

2. Property Taxes

Under a double net lease, tenants are responsible for paying their fair share of the property taxes. This means they cover a proportional portion of the business rates or property tax bill related to the space they lease.

3. Building Insurance

Tenants also pay for the building's insurance premiums. This helps protect the property from risks like fire or damage, shifting this cost from the landlord to the tenant.

4. Landlord Responsibilities

While tenants cover taxes and insurance, the landlord remains responsible for the building's structural maintenance and repairs. This includes things like the roof, foundation, and major systems that keep the property safe and functional.

Understanding these key components helps tenants plan their budgets better and clarifies what costs they are expected to manage in an NN lease. For landlords, it provides a clear framework for sharing expenses and maintaining the property effectively.

Double Net Lease vs. Other Types of Net Leases

Single Net Lease (N Lease)

In a single net lease, the tenant typically pays only property taxes. This lease type is less common and simpler than the double net lease.

Double Net Lease (NN Lease)

Tenants pay property taxes and insurance premiums, while the landlord covers structural maintenance. This strikes a middle ground in tenant responsibility.

Triple Net Lease (NNN Lease)

Triple net leases place nearly all property-related costs on the tenant, including:

• Property taxes
• Insurance premiums
• Maintenance and repairs (including structural)
• Utilities and other operating expenses

Triple net leases are popular for standalone commercial buildings. Tenants under NNN leases often shoulder unpredictable costs, which can sometimes lead to disputes or requests for rent concessions if maintenance costs spike unexpectedly.

What Are the Benefits of a Double Net Lease for Tenants and Landlords?

For tenants, a double net lease in the UK offers cost transparency and potentially lower base rent, making it easier to plan finances. Landlords benefit by transferring fluctuating costs like business rates and insurance to tenants, ensuring more predictable income.

Tenants also avoid unexpected major repair costs since landlords handle structural maintenance. This balance makes NN leases a practical option in the commercial property market UK.

Pros of a Double Net Lease

A double net lease (NN lease) structure offers benefits like lower base rent, clear cost transparency, and flexible terms for both tenants and landlords.

1. Lower Base Rent

Because tenants cover property taxes and insurance, landlords often set a lower base rent compared to gross leases. This can make double net leases attractive for businesses trying to manage monthly costs.

2. Greater Cost Transparency

Tenants get a clearer view of their actual expenses, which can make budgeting and financial planning more straightforward. Instead of paying a lump sum with unknown fees hidden inside, they know exactly what they're responsible for.

3. Room for Negotiation

The specific terms of a double net lease (NN lease), including rent and which costs tenants cover, can often be negotiated. This flexibility allows both landlords and tenants to tailor the lease to fit their needs.

4. Long-Term Stability

Double net leases typically come with longer terms, providing tenants with stability and helping landlords secure steady income without frequent turnovers.

5. Protection Against Cost Volatility for Landlords

Since tenants cover taxes and insurance, landlords are less exposed to sudden increases in these expenses, helping them maintain more predictable cash flow.

Cons of a Double Net Lease

While a double net lease (NN lease) offers benefits like lower base rent and cost transparency, it also comes with some challenges. Tenants may face unpredictable expenses due to fluctuating property taxes and insurance premiums, along with limited options for customising the space.

Meanwhile, landlords still handle property management and may encounter unexpected maintenance costs. Understanding these potential downsides helps both parties make informed leasing decisions.

1. Fluctuating Financial Obligations for Tenants

Property taxes and insurance premiums can vary year to year. Tenants might find budgeting challenging when these costs rise unexpectedly.

2. Limited Customisation for Tenants

Tenants often face restrictions on making major modifications to the property, as the landlord retains responsibility for the building's structural integrity.

3. Landlord's Ongoing Management Burden

Landlords still need to collect tax and insurance payments and manage the property. This can increase their workload and may affect profitability, especially if disputes arise.

4. Potential Unexpected Expenses

Even though the tenant handles taxes and insurance, landlords may still face surprise costs related to maintenance or structural repairs, requiring careful financial planning.

Important Considerations Before Signing a Double Net Lease

Every Double Net Lease can differ depending on the negotiation between the landlord and the tenant. It's important to:

• Review the lease agreement thoroughly.
• Understand exactly which expenses you are responsible for.
• Seek professional legal and financial advice to avoid surprises.

A well-drafted double net lease protects the interests of both parties and sets clear expectations, reducing the risk of disputes later on.

Gross Lease vs. Net Lease: What's the Difference?

In a gross lease, the landlord pays all expenses like property taxes, insurance, and maintenance. These costs are wrapped into a higher, all-inclusive rent. This setup provides simplicity for tenants but typically comes with a premium rent price.

Net leases (including single, double, and triple net) shift some or all of these costs onto the tenant, often lowering base rent but requiring tenants to manage and budget for additional expenses.

Are Double Net Leases Common in the UK Commercial Property Market?

Yes, double net leases are quite common in the UK, especially for retail and office spaces. They offer a balanced way for landlords to share operational costs with tenants while still retaining responsibility for major repairs. Businesses leasing commercial property under an NN lease should be prepared to handle payments for business rates and building insurance, but benefit from lower base rent and long-term leasing stability.

Final Thoughts

A double net lease provides a balanced approach between tenant and landlord responsibilities in commercial real estate. Tenants cover property taxes and insurance, while landlords take care of structural maintenance.

A double net lease (NN lease) offers a middle ground for tenants and landlords, balancing cost-sharing with responsibility. It suits businesses wanting lower base rent but willing to take on certain operating expenses, and landlords looking for steady income with limited exposure to tax and insurance fluctuations.

By understanding how double net leases work, their advantages and disadvantages, and what to watch out for in the lease terms, both tenants and landlords can negotiate agreements that work well for their commercial real estate needs.

Need Help with Double Net Lease?

If you're considering entering into a Double Net Lease, consult with a specialist commercial lease solicitor to ensure the lease terms fit your financial goals and risk tolerance.

Whether you're a tenant negotiating your first commercial property lease or a landlord drafting a new double net lease agreement, professional advice can save you money and protect your long-term interests.

Call our commercial lease solicitors on 0203 959 7755 for personalised guidance on double net leases, negotiations, and landlord-tenant responsibilities.