Commercial real estate leases come in a variety of forms. It is not commonplace for intricate leases to be explained in simple terms to facilitate communication with others. In commercial real estate, a ‘double net lease’ is a word that represents a particular sort of lease arrangement. Still, it’s not necessarily as straightforward as it seems. This post will look at the double net commercial real estate lease in further detail.
What exactly is a Double Net Lease?
First and foremost, what exactly is a double net lease? A double net lease is a lease type in which the tenant is responsible for two expenditures related to the property. A tenant incurs real estate taxes and insurance under a double net lease. All additional property expenditures are the landlord’s responsibility. First and foremost, what exactly is a double net lease? A double net lease is a lease type in which the tenant is responsible for two expenditures related to the property. A tenant incurs real estate taxes and insurance under a double net lease. All additional property expenditures are the landlord’s responsibility.
Although this double net lease arrangement appears straightforward, commercial real estate leases are complex legal agreements that must be correctly examined to be understood. Several lease clauses might result in a more complex lease structure, even with a double net lease. We’ll go over some of these intricacies further down. First, let’s look at the entire gamut of commercial real estate leases.
Commercial Real Estate Lease Varieties:
Although the double net lease structure may be explained in essential words, it is vital to comprehend the entire range of commercial real estate contracts. Commercial real estate leases may be thought of as a spectrum. Absolute net leases are at one extreme of the spectrum. In total net leases, the tenant is responsible for all property expenditures. Absolute gross leases are at the other extreme of the spectrum. In absolute gross leases, the landlord pays for all property-related expenses. Most leases, including the double net lease, fall somewhere in the centre and are classified as hybrid leases.
Why Should You Always Read the Lease?
Commercial real estate leases are rarely neatly packaged in boxes with conventional descriptive titles. This is true for double net leases and other popular lease types, including full-service leases, triple net leases, single net leases, and modified gross leases. Commercial real estate leases are complex legal contracts that typically contain complexity and unique information to each lease.
Leases vary because they are produced at different eras and under various economic situations. They are negotiated to represent the individual demands of each party. This is why, when it comes to commercial real estate leases, the most important thing to remember is that the only way to comprehend a lease agreement is to read it. It is very uncommon for a lease to be defined in one manner, such as “double net,” but to state something entirely different when read in its whole.
Lease conditions vary based on who you speak with and global; therefore, it is always vital to thoroughly study a lease agreement to comprehend it fully.
Example of a Double Net Lease:
As mentioned above, double net leases are somewhere in the centre of the spectrum of commercial real estate leases. Although the lease structure may appear straightforward because it merely needs the renter to pay property taxes and insurance, there is sometimes complexity disguised in a lease agreement.
One example is the method through which reimbursements are computed. The repayments, for example, might be determined using expense stops. An expense stop only compels the landlord to cover expenses up to a particular amount. For example, a landlord may include a $5 per square foot expenditure cap in the lease. This implies that if expenditures surpass $5 per square foot in any given year, the renter is responsible for expenses above $5 per square foot.
There might be further subtleties. For example, the expenditure cutoff may change year to year to keep up with inflation. Alternatively, an expense stop might be designed using a base year stop, which compels the tenant to pay only for the portion of expenses that exceed the amount of the payment in the lease’s base year. There may also be differences in how the base year is determined.
These are just a few subtleties that may be found in a double net lease. The essential conclusion, once again, is that the only way to fully grasp what a specific contract needs from the tenant and the landlord is to read the lease in its entirety.
Net Lease vs Single Net Lease:
A tenant must pay property taxes and insurance under a double net lease. In contrast, a single net lease requires the renter to pay property taxes. A double net lease differs from a single net lease. The tenant is not required to compensate the landlord for any insurance costs related to the property. It should be emphasised that the same intricacies that make the double net lease more complicated than it also appears to apply to all other lease types covered, including the single net lease.
Triple Net Lease vs Double Net Lease
The triple net lease requires the renter to pay for all expenditures, whereas the double net lease needs the tenant to pay for two expenses. Under a double net lease, the tenant is liable for paying property taxes and insurance. The renter pays property taxes, insurance, and upkeep under a triple net lease. However, like with any lease, it is critical to explain who is responsible for paying each expenditure, and triple net leases are not always as straightforward as they appear.
Net Lease vs Gross Lease
A gross lease, also known as a full-service lease, requires the landlord to pay for all the property’s operational expenditures. The tenant is responsible for property taxes and insurance under a double net lease. Although a gross lease may appear to be a better deal for a tenant, in actuality, base rates for a property are frequently higher under a gross lease to reflect the additional expenditures a landlord must pay.
Modified Gross Lease vs Double Net Lease
The double net lease is a sort of modified gross lease. It is a hybrid lease in which the renter pays for some of the property’s expenditures while the landlord pays for others. These leases frequently have a subtlety that makes them more difficult to interpret than they appear at first look. Additional nuances might include spending restrictions, caps, floors, administrative fees, and so on. As previously said, the only way to fully comprehend a lease arrangement is to go into the actual lease agreement and thoroughly study it.
In this post, we described the double net lease, reviewed some examples of peculiarities you could encounter in a double net lease, and compared it to other popular lease types. We stressed that commercial real estate leases are complex legal agreements that must be appropriately studied to be understood entirely. Simple descriptive terminology, such as double net lease, is not usually an accurate representation of the actual terms of a lease arrangement.