When a landlord quotes you a rate on commercial space, the number itself does not tell you much unless you know the lease structure behind it. A $20 per square foot gross lease and a $12 per square foot NNN lease might result in almost the same total occupancy cost — but the risk allocation is completely different. Understanding these structures is critical for both tenants and landlords. Let me break down the differences.
Gross Lease (Full-Service Lease)
In a gross lease, you pay one all-inclusive rent amount. The landlord is responsible for all operating expenses — property taxes, insurance, maintenance, common area costs, and sometimes even utilities. What you see is what you pay.
Advantages for tenants: Simplicity and predictability. You know exactly what your monthly cost is. No surprises from tax increases or insurance premium hikes.
Disadvantages: The rent is higher because the landlord builds in a cushion for expected expenses — and often adds a margin for unexpected ones. You are paying for convenience, and you have no visibility into actual costs.
Common in: Multi-tenant office buildings, co-working spaces, and medical offices. Full-service gross is the standard for Class A office.
Net Lease
Net leases shift some or all operating expenses from the landlord to the tenant. There are several flavors:
Single Net (N)
The tenant pays base rent plus property taxes. The landlord covers insurance and maintenance. This structure is relatively uncommon on its own.
Double Net (NN)
The tenant pays base rent plus property taxes and insurance. The landlord covers maintenance and common area costs. More common than single net, but still less prevalent than NNN.
Triple Net (NNN)
The tenant pays base rent plus property taxes, insurance, and common area maintenance (CAM). The landlord's responsibility is typically limited to structural and roof repairs (though absolute NNN leases shift even those to the tenant).
Advantages for tenants: Lower base rent and full transparency into what you are paying for. If expenses decrease, you benefit directly.
Disadvantages: Expense variability. Property taxes, insurance premiums, and maintenance costs can fluctuate year to year. Without a CAM cap, your costs could rise significantly.
Common in: Retail strip centers, standalone retail, industrial/warehouse properties, and freestanding commercial buildings.
Modified Gross Lease
The modified gross lease is the middle ground. Landlord and tenant negotiate which expenses each party covers. A typical arrangement might have the landlord pay property taxes and insurance while the tenant pays utilities, janitorial, and their share of CAM. The specifics are entirely negotiable.
Many modified gross leases include an expense stop — a base year amount for expenses. The landlord covers expenses up to that amount, and the tenant pays any increases above it. This protects both parties: the tenant has cost predictability in year one, and the landlord is protected from absorbing all future cost increases.
Side-by-Side Comparison
| Expense | Gross | Mod. Gross | NNN |
|---|---|---|---|
| Property Taxes | Landlord | Negotiated | Tenant |
| Insurance | Landlord | Negotiated | Tenant |
| CAM | Landlord | Negotiated | Tenant |
| Utilities | Landlord | Usually Tenant | Tenant |
| Base Rent | Highest | Middle | Lowest |
How This Affects Your Total Cost
Here is what catches people off guard: the total occupancy cost under a gross lease and a NNN lease for the same space is often very similar. The difference is not how much you pay — it is how you pay it, who controls the costs, and how predictable your expenses are.
A landlord quoting $18/SF gross is building in their estimate of operating expenses. A landlord quoting $12/SF NNN plus $6/SF in estimated expenses is giving you the same total — but with transparency into where your money goes. The NNN tenant can audit those expenses. The gross tenant cannot.
Which Structure Should You Choose?
The right lease structure depends on your priorities:
- Choose gross if you want maximum simplicity and budget certainty.
- Choose NNN if you want cost transparency, lower base rent, and are comfortable with some variability in operating expenses.
- Choose modified gross if you want a balance — some predictability with some transparency, and room to negotiate the split.
The Bottom Line
Do not compare lease rates across different structures without understanding what is included. A $14 NNN rate is not cheaper than a $20 gross rate until you add up the total occupancy cost. I always help my clients calculate the all-in cost before making decisions — because the base rent is only part of the story.