What Is Gross Lease vs. Net Lease?
A commercial lease defines who pays which expenses. The two poles of the spectrum are gross leases and net leases — and everything in between.
A commercial lease defines who pays which expenses. The two poles of the spectrum are gross leases and net leases — and everything in between.
In a gross lease (also called a full-service lease), the tenant pays a single flat rent and the landlord pays all operating expenses: property taxes, insurance, maintenance, utilities. This is common in office buildings where multiple tenants share a building and it’s impractical to separately meter utilities or apportion maintenance.
In a net lease, the tenant pays base rent plus some or all operating expenses. The word “net” tells you the landlord’s rent is “net” of expenses — the tenant picks up the costs. Three variants:
- Single Net (N): Tenant pays base rent + property taxes. Rare.
- Double Net (NN): Tenant pays base rent + property taxes + insurance. Common in older retail.
- Triple Net (NNN): Tenant pays base rent + property taxes + insurance + maintenance. The landlord’s preferred structure — maximum pass-through.
For an investor, NNN leases are attractive because the landlord’s expenses are predictable and the NOI is “clean.” A Walgreens NNN lease means the tenant pays for everything; the landlord deposits the check. A gross lease means every spike in property taxes, insurance, or HVAC costs eats directly into the landlord’s NOI.
Modified gross leases sit in the middle — landlord pays some expenses, tenant pays others, negotiated on a deal-by-deal basis. (Lease terms carry real legal weight; have an attorney review any lease before you rely on it.)
Modified Gross vs. Triple Net (NNN): Comparing the Real Occupancy Cost
Gross and net are the two poles, and most real leases sit closer to the middle. The comparison that trips up tenants and buyers is modified gross against triple net. In a modified gross lease, the tenant pays base rent plus expenses above an agreed expense stop, set at the building’s operating cost in the lease’s first year; the landlord absorbs everything up to that line. In a triple net (NNN) lease, the tenant pays base rent plus taxes, insurance, and maintenance in full, from dollar one, with no stop at all.
Headline rents alone don’t tell you which deal costs less. Two 5,000-square-foot spaces, both up for lease. Space A quotes a modified gross rent of $28/SF with an $8/SF expense stop; actual operating costs this year run $9.50/SF, so the tenant pays a $1.50/SF pass-through on top of rent, for an all-in cost of $29.50/SF. Space B quotes a triple net rent of $22/SF, six dollars cheaper on paper, plus $8.25/SF in taxes, insurance, and CAM, for an all-in cost of $30.25/SF. The NNN space that looked cheaper costs more once every pass-through lands.
For a tenant comparing quotes, the all-in occupancy cost is what matters, not the headline rent on the flyer; run both structures to the same number before you sign. For a landlord or a buyer underwriting the acquisition, the lease type matters more than the rate itself. NNN converts a variable expense line into a fixed one and hands the volatility to the tenant, which is why net-lease income prices at a lower cap rate than gross-leased income of the same size.
Learn this properly
Gross Lease vs. Net Lease is one of the core numbers in commercial real estate. The Language of CRE course teaches it alongside every other metric you need to read a deal, with worked examples and practice questions.
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Common questions
What is Gross Lease vs. Net Lease?
A commercial lease defines who pays which expenses. The two poles of the spectrum are gross leases and net leases — and everything in between.
Why does Gross Lease vs. Net Lease matter in a commercial real estate deal?
In a gross lease (also called a fullservice lease), the tenant pays a single flat rent and the landlord pays all operating expenses: property taxes, insurance, maintenance, utilities. This is common in office buildings where multiple tenants share a building and it’s impractical to separately meter utilities or apportion maintenance.
Related terms
[Gross Potential Income (GPI)](/gross-potential-income/) · [Gross Rent Multiplier (GRM)](/gross-rent-multiplier/)
Educational definition only. Not investment, financial, or brokerage advice.