Gross, Net, and Modified Gross Leases: What’s the Difference for Tenants?

When you’re evaluating commercial space, the rent number on the flyer is only part of the story. The real question is: what does that number actually include? Landlords use terms like gross, net, and modified gross to describe how costs are shared between them and the tenant—but these labels can be confusing. If you don’t understand the difference, you may walk into a lease that looks affordable on the surface but quickly becomes much more expensive.

This guide breaks it down simply, so you know what you’re signing and how to compare options with confidence.

Why Lease Types Matter

Think of your lease type as the “recipe” for your rent. It determines:

• Which expenses are included in your rent check.
• Which costs the landlord covers versus what you must budget separately.
• How predictable (or unpredictable) your monthly expenses will be.

For small businesses and nonprofits, clarity here is critical. Misunderstandings around operating expenses are one of the top reasons tenants end up over budget.

The Three Main Lease Types

1. Gross Lease (Sometimes Called “Full Service”)

In a gross lease, the landlord takes on most of the building’s operating expenses. You pay one fixed rent amount, and that covers:

1. Base rent
2. Property taxes
3. Insurance
4. Common area maintenance (CAM) like landscaping or lobby cleaning
5. Sometimes even utilities and janitorial

What this means for tenants:

• Budgeting is straightforward—your rent payment is predictable.
• Landlord assumes risk if costs spike.
• The rent rate itself may look higher than a net lease, but you’re buying simplicity and stability.

Pro tip: Review carefully what is truly “included.” Some landlords still pass through certain costs (like electricity overages or after-hours HVAC).

2. Net Lease

A net lease shifts more responsibility onto the tenant. You pay base rent plus certain operating costs.

There are variations:

1. Single Net (N): You cover property taxes.
2. Double Net (NN): You cover taxes + insurance.
3. Triple Net (NNN): You cover taxes + insurance + CAM (the most common).

What this means for tenants:

• The base rent number often looks lower, but your total monthly costs can fluctuate.
• You’re exposed to increases in taxes, insurance, and operating expenses.
• More common in retail and industrial properties.

Rule of thumb: Always ask for an estimated “all-in” cost per square foot (base rent + pass-throughs) so you can compare apples to apples.

3. Modified Gross Lease

This is the middle ground between gross and net. You’ll pay a base rent plus some—but not all operating expenses.

Typical structures include:

• Landlord covers property taxes and insurance, but you pay your own utilities and janitorial.
• Base year method: Landlord covers expenses up to the level of a certain “base year,” and you pay increases beyond that.

What this means for tenants:

• More predictable than net, but not as all-inclusive as gross.
• Requires careful reading to see which expenses are included and how increases are calculated.
• Common in multi-tenant office buildings.

Pro tip: In a modified gross lease with a base year, review the expense history. If the base year is artificially low, you could face steep increases.

How to Compare Lease Types (Without Getting Lost in the Math)

When reviewing proposals:

1. Ask for a cost breakdown. Get both the base rent and estimated pass-throughs in writing.
2. Calculate the all-in number. What is the total cost per square foot you’ll realistically pay?
3. Check escalation clauses. How will your rent or expenses increase each year?
4. Think about risk tolerance. Do you want predictable monthly costs (gross) or are you willing to share in the risk (net/modified)?

Real-World Example

Imagine two spaces, each 2,000 square feet:

• Option A: Gross Lease at $32/SF = $64,000/year ($5,333/month), utilities included.
• Option B: NNN Lease at $24/SF base rent + $9/SF expenses = $66,000/year ($5,500/month).

Option B looks cheaper on the flyer ($24 vs. $32), but once you add the extras, it’s actually more expensive. If taxes or CAM increase, Option B could cost even more over time.

Key Takeaways for Tenants

• Gross Lease = Simplicity and predictability.
• Net Lease = Lower base rent, but higher variability.
• Modified Gross = Middle ground, but details matter.

The best lease type depends on your business’s cash flow needs, risk tolerance, and how much budgeting certainty you want. Don’t stop at the base rent number—always compare the total cost and the rules for future increases.

Next Steps

Understanding the lease structure is just one piece of the puzzle. Before signing, you’ll also want to evaluate CAM clauses, renewal options, and escalation terms. If you need help, LucidLease connects tenants with trusted advisors who specialize in lease negotiation.