The Difference Between Triple Net and Gross Leases
Do you understand the difference between these two common leases?
When leasing commercial office space, tenants and landlords commonly choose between these two types of leases. These lease structures determine how operating expenses are allocated and significantly impact both the financial responsibilities and predictability of costs for tenants.
Tenants and landlords commonly choose between these two types of leases.
Triple Net (NNN) Lease
In a Triple Net Lease, the tenant is responsible for base rent plus their share of the property. These typically include:
Property Taxes
Building Insurance
Common Area Maintenance (CAM)
Essentially, the tenant “nets” out these costs from the landlord’s responsibility, hence the term “triple net”. In office buildings with multiple tenants, these costs are usually apportioned based on the tenant’s pro-rata share of the total rentable square footage.
NNN is less predictable in terms of monthly cost.
Gross leases are less commonly used.
Below is a scenario comparison in which the client has the option to continue leasing space or to purchase. This example will show which is more beneficial to the client.
Operating Expense Pass Through
NNN leases involve operating expense pass-throughs, meaning any increases in these costs are passed directly to the tenant. This makes NNN leases less predictable in terms of total monthly cost, especially in markets with rising property taxes or utility costs.
Expense Caps
To mitigate this risk, tenants often negotiate expense caps, especially on controllable expenses like maintenance or management fees. These caps can be fixed (hard caps) or tied to inflation indexes (soft caps), limiting the annual increases the landlord can pass through.
Gross Lease
A Gross Lease, also known as a Full-Service Lease, includes all or most operating expenses in the base rent. This means the landlord pays for property taxes, insurance, and CAM, offering tenants a more predictable, all-in monthly rent.
Modified Gross Lease
A variant, the Modified Gross Lease, starts similarly to a full-service lease but allows for expense pass-throughs beyond a base year. For example, if property taxes increase after the first year, the tenant may pay their share of the difference.
Expense Caps in Gross Leases
While less common than in NNN leases, expense caps can also apply to Gross leases—usually in modified versions—helping tenants control future cost increases from base-year escalations.
Choosing the right lease type depends on a tenant’s risk tolerance, desire for cost predictability, and ability to manage operating expense fluctuations. Understanding these structures ensures informed negotiations and long-term financial planning.
Cherry Associates can help clients analyze all aspects of the lease decision process. If your firm is considering moving or renewing an existing lease, let Cherry Associates help guide you through the complex process.
