Double net leases allow the landlord to pass even more risk on to the tenant. If either the property tax bills or the property insurance premiums rise, tenants are required to pay the amount of the increase. The landlord still gets their base rent each month, ensuring a more stable profit. The landlord typically sets up a monthly escrow payment, in addition to the rent, to make sure the taxes and insurance are paid.

When tenants rent a portion of a larger building, the landlord typically prorates tax and insurance costs for each tenant based on the property’s square footage.

For example, a tenant renting 2,000 square feet in a 10,000-square-foot building would pay 20% of the total property taxes and property insurance costs. The tenant pays the landlord for these costs, and the landlord then pays the actual property tax and property insurance bills.

RELATED: Single, Double, and Triple Net Leases – What’s the Difference?

Similar to a single net lease and triple net lease, if the tenant fails to pay property taxes, the local government puts a lien against the property, which is ultimately the landlord’s problem rather than the tenant’s. To solve this problem, landlords using double net leases will often collect the property tax costs from the tenant, then pay the tax bill themselves to ensure on-time, in-full tax payment.

Reviewed by Mark H. Zietlow, Innovative Law Group