Understanding Commercial Lease Types: NNN, Gross, Modified Gross

Put Simply

There are three main types of commercial leases, and the difference comes down to one question: who pays for what? In a Full-Service Gross lease, the tenant pays one flat monthly amount and the landlord handles everything else: taxes, insurance, utilities, maintenance. Simple, predictable, and common in office buildings. In a Triple Net (NNN) lease, the tenant pays base rent plus their share of taxes, insurance, and maintenance. The landlord gets a clean "net" check. A Modified Gross lease is somewhere in between: some expenses are the tenant's, some are the landlord's, negotiated specifically between the parties.

For tenants, gross leases are simpler but the all-in rent is typically higher because the landlord is absorbing operating risk. NNN leases give you more visibility into your actual costs and often lower base rent, but require you to manage more variables. Knowing which structure you're signing matters enormously over a 5- or 10-year lease term.

The CCIM Perspective

Commercial lease structures determine how operating expense risk is allocated between landlord and tenant, and that allocation changes property value, NOI stability, and investor underwriting materially. This is not a legal distinction; it is a financial one that must be understood by every party in a transaction.

In a Full-Service Gross (FSG) lease, the landlord assumes all operating expenses within the base rent. The landlord is therefore exposed to expense inflation, including rising property taxes, insurance premiums, and utility costs, which compresses NOI over the lease term. FSG leases are standard in multi-tenant office and some medical office environments. To mitigate this exposure, most FSG office leases incorporate a base year or expense stop provision: the landlord covers expenses up to the base year amount, and any increase above that threshold passes through to tenants as operating expense escalations. The base year selection is a meaningful economic negotiating point.

In a Net lease, whether single-net, double-net, or triple-net, the tenant pays base rent plus some or all operating expenses. The landlord's NOI is shielded from expense inflation, a critical advantage in rising cost environments. Industrial and most retail properties are predominantly leased on NNN terms, making their income streams more predictable and easier to underwrite for lenders and investors alike.

Modified Gross leases require careful review of the specific lease document: the expense allocation is negotiated, not standardized, and the term alone tells you nothing about who pays what. Common structures include the tenant paying utilities and janitorial while the landlord retains taxes, insurance, and maintenance (typical in medical office); or the tenant paying their pro-rata share of taxes and insurance while the landlord retains structural and common area maintenance. Effective rent analysis, discounting all economic terms including gross rent, TI amortization, free rent, and operating expense obligations to a net present value per square foot, is the only accurate method for comparing lease offers across different structures.