Commercial Lease Types: Triple Net vs Gross vs Modified Gross
In a gross lease, the tenant pays one rent and the landlord pays the building's property taxes, insurance, and maintenance out of it. In a triple net (NNN) lease, the tenant pays base rent plus its share of all three. A modified gross lease sits in between: some costs are built into rent and others are passed through to the tenant, in a split the parties negotiate, often using a base year or an expense stop.
Who pays what under each lease type
The tenant pays base rent under every structure. What changes is who carries the property's operating costs on top of it, and whether those costs sit inside a fixed rent or are billed separately as additional rent.
| Lease type | Property taxes | Building insurance | CAM and maintenance | Roof and structure | Utilities and janitorial |
|---|---|---|---|---|---|
| Gross / full-service gross | Landlord (in rent) | Landlord (in rent) | Landlord (in rent) | Landlord | Landlord in full-service; varies in other gross leases |
| Modified gross | Split as negotiated | Split as negotiated | Split as negotiated | Usually landlord | Often tenant |
| Single net (N) | Tenant | Landlord | Landlord | Landlord | Usually tenant |
| Double net (NN) | Tenant | Tenant | Landlord | Landlord | Tenant |
| Triple net (NNN) | Tenant | Tenant | Tenant | Varies by lease | Tenant |
| Absolute / bondable net | Tenant | Tenant | Tenant | Tenant | Tenant |
“Tenant” means the tenant pays directly or reimburses its pro-rata share as additional rent. These allocations are typical, not standard. Single net and double net are defined differently by market, and any lease can move a cost from one column to another.
Roof and structure is where triple net leases differ most. Some leave structural repairs and roof replacement with the landlord, some give the tenant routine roof repairs only, and many single-tenant leases put all of it on the tenant.
Gross and full-service gross leases
Under a gross lease, the landlord budgets the building's operating costs and prices them into the rent. The tenant pays one amount, and the landlord carries the risk that those costs rise.
A full-service gross lease is the most inclusive version: rent also covers utilities and janitorial for the premises. “Gross” on its own is looser, and an industrial or small-office gross lease may still leave utilities, janitorial, or in-suite repairs with the tenant.
Many full-service leases in multi-tenant office buildings also pass through cost increases after the first year, using a base year or an expense stop. In practice, those leases behave like modified gross leases from year two on.
What is a modified gross lease?
A modified gross lease splits operating costs between landlord and tenant however the parties negotiate. There is no standard version, so two leases both called modified gross can allocate costs very differently. Most follow one of three patterns, or combine them.
Building costs in rent, suite costs to the tenant
The landlord covers taxes, insurance, and CAM out of rent. The tenant pays utilities and janitorial for its own space.
Gross rent with a base year or expense stop
Rent covers operating costs up to a threshold, and the tenant pays its share of anything above it.
Named costs passed through
The tenant reimburses one or two named costs, such as real estate taxes or CAM, and the landlord absorbs the rest.
The third pattern is why people ask how modified gross differs from double net. Economically, the two can be identical. The difference is in the drafting: a net lease starts from base rent and adds named costs, while a modified gross lease starts from an all-in rent and carves costs out of it.
Net leases: single, double, triple, and absolute
Each “N” adds a category of property cost the tenant pays on top of base rent. The progression is consistent; the exact definitions are not.
Single net (N)
The tenant pays base rent plus property taxes, or its share of them, and the landlord keeps insurance and maintenance. Single net leases are relatively uncommon, and some markets assign the one pass-through differently.
Double net (NN)
Most often, the tenant pays taxes and building insurance and the landlord handles maintenance and CAM. In some markets, NN instead means the tenant pays taxes, insurance, and CAM while the landlord keeps the roof and structure.
Triple net (NNN)
The tenant pays base rent plus taxes, insurance, and CAM or maintenance, usually as monthly estimates reconciled against actual costs after year-end.
Absolute or bondable net
The tenant carries every cost and risk of the property, including roof and structural replacement. In the strictest (bondable) form, rent continues even if the building is damaged or condemned.
For short definitions of related terms such as CAM, gross-up, and base year, see the commercial real estate lease glossary.
Base year vs expense stop
Both let a landlord quote a gross or modified gross rent while passing future cost increases to the tenant. The difference is what sets the threshold.
A base year uses the building's actual operating expenses in a named year, often the first full calendar year of the term. The tenant pays its share of increases over that amount in later years. Because the baseline depends on how full the building was that year, base year leases usually include a gross-up provision.
An expense stop is a fixed dollar figure, usually per square foot, written into the lease. The tenant pays its share of expenses above it. A stop set below actual costs produces a pass-through from the first year; one set above them produces none until costs catch up.
Illustrative example
These figures are illustrative only. A tenant leases 10,000 rentable square feet in a 100,000 square foot building, a 10% pro-rata share. Operating expenses were $1,200,000 ($12.00/SF) in the base year and are $1,350,000 ($13.50/SF) two years later. What the tenant owes for that year on top of base rent:
- Full-service gross, no pass-through: $0.
- Gross with a base year: 10% of the $150,000 increase, or $15,000.
- Gross with an $11.00/SF expense stop: $2.50/SF over the stop on 10,000 SF, or $25,000.
- Triple net: 10% of the full $1,350,000, or $135,000, with base rent correspondingly lower.
The building spent the same money in every case. The expense structure decides how much of it lands on the tenant.
Why the label on a lease is unreliable
“Triple net” or “modified gross” usually appears in the listing, the letter of intent, or a summary page rather than as an operative term, and markets use the labels differently. What governs is the operating expense and additional rent provisions: what counts as an operating expense, which costs the tenant reimburses, from what threshold, at what share, and with what limits.
Drafting choices that change the economics without changing the label:
- A “gross” lease with a base year passes through every increase after the base year.
- A cap on controllable expenses limits how fast a NNN tenant's CAM charge can grow.
- An operating expense definition that includes amortized capital improvements can bring part of a roof or HVAC replacement into the tenant's charges, even where the landlord does the work.
- A renewal amendment can reset the base year, add an expense stop, or convert a gross lease to net.
The last one catches teams that read only the original lease. See how amendments change the terms of a lease abstract before relying on a lease type recorded years ago.
Which lease types are common by property type
Practice varies by market, landlord, and tenant size, so treat these as general tendencies rather than rules.
Single-tenant retail and industrial
NNN is common, and long-term leases to tenants with strong credit are where absolute net structures most often appear.
Multi-tenant office
Full-service gross with a base year is common in larger buildings. Smaller and suburban office buildings often use modified gross.
Shopping centers
NNN with separate CAM, tax, and insurance pass-throughs is common, and larger tenants often negotiate caps and exclusions that smaller tenants do not get.
Multi-tenant industrial and flex
NNN or modified gross, depending on the market and how much of the building the tenant occupies.
One portfolio, or one building, can hold several structures at once, so portfolio expense reporting has to read each lease rather than assume a structure from the property type.
Expense terms to capture in the lease abstract
Recording “NNN” or “modified gross” in an abstract tells the reader very little. These fields determine the tenant's actual bill, and each belongs in the abstract on its own.
Pass-through categories
Which costs the tenant reimburses (taxes, insurance, CAM, utilities, management fees) and which are included in base rent. This field, more than the label, tells you the lease type.
Base year or expense stop
The base year and whether it resets on renewal or expansion, or the stop amount and the area it is measured on.
Pro-rata share
The percentage and its denominator: the building, the center, or a defined expense pool. Expansions, remeasurements, and anchor exclusions in retail all change it.
Caps on controllable expenses
The annual limit, whether it is cumulative, and which costs sit outside it. Taxes, insurance, and utilities commonly do.
Exclusions
Costs the landlord cannot pass through, such as capital improvements, leasing commissions, and financing costs, and any carve-backs that allow amortized capital costs.
Gross-up and audit rights
The occupancy level variable expenses are grossed up to, the window for auditing the annual statement, and who pays for the audit if an overcharge exceeds a set threshold.
Getting the structure wrong flows straight into year-end reconciliation. Bill a modified gross tenant as if it were NNN and it pays for costs already in its rent. Use the wrong base year and every later year is off. Miss a cap or an exclusion and the overcharge repeats until someone audits it. For how these mistakes show up in practice, see common CAM reconciliation errors in commercial leases.
Capturing expense terms with Abstria
Abstria's AI lease abstraction software extracts pass-through categories, base year, expense stop, pro-rata share, caps, exclusions, and audit rights among the 200+ fields it pulls from each lease, amendment, and acknowledgement, in 2-5 minutes per document. Each field links back to its source clause in the dual-panel editor, so whoever checks a reconciliation can read the actual exclusion list instead of a summary. For everything else a lease abstract covers, see the lease abstraction guide.
Commercial lease types FAQ
What is the difference between a modified gross lease and a triple net lease?
Under a triple net lease, the tenant pays its share of property taxes, insurance, and CAM from the first dollar, on top of base rent, so it carries the risk that those costs rise. Under a modified gross lease, some or all of those costs are built into the rent, and the tenant usually pays only named categories or its share of increases above a base year or expense stop. The landlord carries more of the cost risk, which is generally reflected in a higher base rent.
What does NNN mean in a lease listing like "$20/SF NNN"?
It means the quoted $20 per square foot is base rent only, and the tenant's share of taxes, insurance, and CAM is billed on top. Most US markets quote the rate per square foot per year, though some quote monthly. Listings often show estimated NNN charges separately. Using illustrative numbers, $20/SF NNN with estimated charges of $8/SF is about $28/SF before utilities, which is the figure to compare against a gross or full-service rate.
Is a triple net lease better for the landlord or the tenant?
It shifts cost risk to the tenant, which is why landlords generally prefer it, but it is not automatically worse for tenants. A NNN tenant usually gets a lower base rent and pays actual costs rather than the landlord's estimate plus a cushion. Whether that works out depends on how the expense provisions are negotiated, particularly caps, exclusions, and audit rights.
Who pays the property tax increase when a building is sold?
In a net lease, usually the tenant, through its share of taxes, unless the lease says otherwise. Where a sale triggers a reassessment, some tenants negotiate a clause excluding reassessment increases caused by a sale, often for a set number of years. In a base year lease, a reassessment shortly after the base year can produce a large pass-through even though the lease is nominally gross.
What is additional rent in a commercial lease?
Additional rent is any amount the tenant owes beyond base rent, most often its share of operating expenses, taxes, and insurance, and sometimes late charges or other costs. Many leases define these sums as rent so the landlord has the same remedies for unpaid expense charges as for unpaid base rent.
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