Reading Your Commercial Lease Part 2: Net vs Gross Leases

Net vs. Gross Leases: Knowing What You're Actually Paying

The Most Fundamental Lease Decision—And the Most Misunderstood

The lease type you agree to determines your total monthly financial obligation, yet many tenants sign leases without fully understanding the differences between lease structures.

Gross Leases: Simplicity and Predictability

In a full-service gross lease, your monthly rent payment covers nearly all building operating expenses including:

• Property taxes

• Building insurance

• Common area maintenance (CAM)

• Utilities (in some cases)

• Property management fees

Advantages for You as the Tenant:

• Predictable monthly costs

• Simplified budgeting

• Protection from unexpected expense increases (within lease terms)

• Reduced administrative burden

Disadvantages for You:

• Higher base rent to account for included expenses

• Less transparency into actual building costs

• Potential to overpay if building expenses are lower than estimated

Net Leases: Variable Costs with Lower Base Rent

Net leases separate base rent from operating expenses, requiring tenants to pay their proportional share of building costs in addition to base rent.

• Single Net (N): Tenant pays base rent plus property taxes

• Double Net (NN): Tenant pays base rent plus property taxes and building insurance

• Triple Net (NNN): Tenant pays base rent plus property taxes, building insurance, and common area maintenance

• The NNN Reality: Triple net leases are common in retail and some office environments. While base rent appears attractively low, the addition of NNN expenses can add $8-20+ per square foot annually, significantly impacting your total occupancy costs.

• Modified Gross Leases: A hybrid structure where some expenses are included in base rent while others are passed through to tenants. These require careful analysis to understand exactly what's included and excluded.

Practical Comparison

When comparing properties with different lease structures, always calculate your total occupancy cost—not just base rent. A property with a higher base rent gross lease may actually be less expensive than a low base rent NNN lease once all expenses are calculated.

Tower Realty Partners Tip: We create total cost comparisons for every property we evaluate, ensuring you're comparing apples to apples across different lease structures and buildings.

Schedule your complimentary lease evaluation consultation.