What does double net, net net, or NN mean?
Nets in a commercial lease refer to expenses that a tenant has to pay in addition to their base rent. A double net lease, also known as a net net or NN lease, refers to a lease in which the tenant pays their pro rata share of property taxes and property insurance.
In a multi-tenant commercial space, each tenant will pay their share of the property insurance and the property taxes based on the square footage of the space they occupy.
For instance, if a tenant occupies 1,000 square feet (sf) in a 10,000 sf building, they will pay 10% of the property taxes and insurance.
These expenses are usually estimated for the year and are charged monthly. If the tenant overpaid throughout the year, the landlord will provide a refund once the costs are reconciled. If the costs totaled more than the tenant paid, the tenant will have to pay the difference at the end of the year.
Let's look at an example:
Building size: 10,000 sf
Space leased: 1,000 sf
Lease rate: $12 psf
Property taxes: $20,000
Property Insurance: $12,000
The taxes and insurance combined total $32,000 for the year.
The tenant is responsible for 10% of that cost, so $3,200.
Based on 1,000 sf, the tenant's share of taxes and insurance comes out to $3.20 psf. This is their double net charge.
The $3.20 is paid in addition to their $12 psf base rent.
The rate per square foot in a lease rate is their total annual rent. So $12 psf equals $12,000 for the year, which is $1,000 per month.
Monthly base rent: $1,000
Monthly net net charges: $266.67 ($3,200 / 12 months)
This means the tenant will be paying a total of $1,266.67 to the landlord each month.
While net net leases are still more common than net leases, they aren't quite as popular as triple net leases.
What's the difference between a net lease, a double net lease, and a triple net lease?
A net lease is exactly the same as a double net lease in every way except that it doesn't include the cost of property insurance. In a net lease, the tenant only pays their pro rata share of the property taxes.
A triple net lease charges the tenants their share of both property taxes and insurance but also includes the common area maintenance. Common area maintenance is most commonly referred to as CAM charges.
CAM charges include things such as lawn care, snow removal, utilities for common areas, and other operating expenses that go into managing the property. Just like with the taxes and insurance, the common area maintenance is divided up among the tenants based on the amount of space they occupy.
The easiest way to remember the difference between net, double net, and triple net leases is with the acronym TIM.
The first net is T - Taxes
The second net is I - Insurance
The third net is M - Maintenance