Understanding Commercial Lease Structures: NNN, Gross, and Modified Gross Leases Explained

In commercial real estate, the structure of a lease can dramatically affect the costs and responsibilities for both landlords and tenants. Terms like NNN (Triple Net), Gross Lease, and Modified Gross Lease describe how expenses like taxes, insurance, and maintenance are divided between the parties. Understanding these lease structures is crucial for informed decision-making. In this guide, we’ll break down each type, compare their key differences, and discuss how each structure impacts investors, tenants, and brokers.

Whether you’re an investor seeking steady passive income, a tenant budgeting for occupancy costs, or a broker structuring a deal, knowing the distinctions between NNN, gross, and modified gross leases will help you navigate the commercial real estate market more effectively. We’ll also highlight how the Brevitas marketplace can help you find properties based on lease type, ensuring you can quickly locate the opportunities that match your criteria.

Triple Net (NNN) Lease

Triple Net Lease (NNN) is a lease structure where the tenant agrees to pay nearly all of a property’s operating expenses in addition to the base rent. “Triple net” refers to the three main expenses passed to the tenant: property taxes, property insurance, and maintenance (including common area maintenance and repairs). In an NNN lease, the landlord’s responsibility for day-to-day costs is minimal, making the rent received by the landlord “net” of these expenses.

• Tenant pays all major expenses: In a true NNN lease, the tenant covers property taxes, building insurance, and maintenance costs, on top of paying rent and utilities. This shifts financial responsibility for operating costs entirely to the tenant.
• Minimal landlord obligations: The landlord typically has little to no responsibility for routine property expenses. (Often the landlord may only be responsible for structural components or pre-arranged capital repairs, depending on the lease terms.)
• Lower base rent: Because the tenant is taking on expenses, base rent in a triple net lease is usually lower than in a gross lease for a similar property. Tenants trade higher responsibility for a lower fixed rent.
• Common with single-tenant properties: NNN leases are popular for single-tenant commercial properties such as standalone retail buildings. Long-term net leases are frequently seen with national credit tenants and franchises.
• Investor advantages: For property owners, an NNN lease provides a stable, predictable income stream with few management hassles, since the tenant handles taxes, insurance, and upkeep.
• Tenant considerations: Tenants gain control over managing the property’s expenses (choosing insurance providers, scheduling maintenance, etc.), but they also assume the risk of cost increases (for example, if property tax rates or insurance premiums rise).

For example, many freestanding retail properties like fast-food restaurants, drugstores, and bank branches are offered as NNN leases. The tenant (often a national chain) handles taxes, insurance, and maintenance for the building, while the landlord enjoys a hands-off investment with rent checks coming in. NNN lease investments are prized by investors looking for low-management, long-term income backed by reliable tenants.

Gross Lease

Gross Leases, often called full-service leases, are the opposite of NNN: the landlord pays for the property’s operating expenses, and the tenant pays a single lump-sum rent. In a gross lease, the rent you pay already includes expenses like property taxes, insurance, and common area maintenance. The landlord uses part of the rent to cover those costs. This structure is straightforward for tenants because they know their total occupancy cost upfront and don’t have to manage fluctuating bills for building expenses.

• One all-inclusive rent: The tenant pays a fixed rent amount that typically includes all major property expenses. The landlord covers property tax bills, property insurance, and maintenance expenses out of the rent collected.
• Predictable costs for tenant: Because the rent is inclusive, tenants can budget precisely. They aren’t directly exposed to increases in operating costs during the lease term (though landlords may account for expected cost increases in the rent or via scheduled escalations).
• Landlord bears expense risk: The property owner must pay for any rising costs of taxes, insurance, or maintenance. If expenses increase beyond what was anticipated in the rent, it cuts into the landlord’s profit. (Some gross leases include escalation clauses or expense stops to address this.)
• Common in multi-tenant properties: Gross leases are often used in multi-tenant office buildings, retail centers, or coworking spaces where the landlord provides services (e.g. cleaning, security, utilities for common areas) for all tenants. It simplifies management when many tenants share one property.
• Variants – full service vs. modified: A “full service gross” lease generally means the landlord covers all operating expenses. Some gross leases have a base year provision or expense stop, where the landlord covers costs up to a certain amount and the tenant pays any increase beyond that base year level (blurring into a modified gross structure). Always check if the gross lease is truly all-inclusive or if there are pass-throughs after a threshold.

In practice, gross leases make life easier for tenants who prefer simplicity. For instance, in many office leasing scenarios, you’ll pay a set dollar amount per square foot and the landlord will take care of building property taxes, insurance, and common area maintenance. If you’re a tenant that doesn’t want to worry about surprise bills for HVAC repairs or landscaping, a gross lease provides that peace of mind (albeit usually at a higher rent). Landlords using gross leases must carefully budget and often charge a bit of a premium on rent to ensure all expenses are covered.

Modified Gross Lease

Modified Gross Leases are a middle ground between pure gross and pure net leases. In a modified gross lease, the landlord and tenant split the operating expenses in a pre-determined way. The tenant pays a base rent, and is then responsible for some (but not all) additional expenses, while the landlord covers the rest. Which expenses are “modified” (shared or passed through) can vary widely from lease to lease – it’s a negotiable, customizable structure.

• Hybrid cost-sharing: A modified gross lease combines elements of both net and gross leases. Typically, the tenant might pay base rent plus certain expenses directly (for example, their own utilities and janitorial services), while the landlord continues to pay other expenses (such as building insurance and property taxes). The specific split is defined in the lease agreement.
• Negotiable terms: Every modified gross lease can be a bit different. Some common arrangements include the tenant covering utilities and interior maintenance, with the landlord covering taxes and insurance; or tenants paying a proportionate share of property taxes and CAM (common area maintenance) while the landlord handles the rest. Because of this variability, it’s essential for both parties to clearly outline in the lease who pays for what.
• Base rent is moderate: The base rent in a modified gross lease usually falls between a net lease and a full gross lease. The landlord charges a moderate rent that covers the expenses they retain responsibility for, but the tenant isn’t paying the premium of a full gross lease since they agree to take on some costs themselves.
• Common in multi-tenant situations: Modified gross structures are often used in buildings with multiple tenants where a full gross lease might not be feasible, but the landlord still wants to handle certain expenses. For example, smaller office buildings or industrial parks might use modified gross leases so that tenants pay for their own utilities and interior upkeep, while the landlord maintains the exterior and common areas.
• Balance of responsibility: This structure offers a compromise. Tenants get more predictability than a triple net (since the landlord is still covering some major items) and often lower rent than a full gross. Landlords, meanwhile, can pass through volatile or tenant-specific expenses (like electricity usage) to the tenants, reducing their risk.

With a modified gross lease, it’s especially important for both parties to read the fine print. For example, a lease might stipulate that the tenant pays all utilities and any increase in property taxes over the first year of the lease, while the landlord pays everything else. If you’re a tenant, confirm which costs are included in your rent and which will be billed separately. If you’re a landlord, make sure the lease clearly delineates expense responsibilities to avoid confusion down the line. Modified gross leases work well when both sides seek a fair sharing of expenses and a clear understanding of their obligations.

Key Differences at a Glance: NNN vs. Gross vs. Modified Gross

The table below summarizes the key differences between a triple net lease, modified gross lease, and gross lease:

Choosing the Right Lease Structure

Each lease structure has pros and cons, and the “right” choice depends on your role and priorities in the transaction. Below, we consider the perspective of investors, tenants, and brokers:

• Investors: If you desire predictable, low-maintenance income, a triple net (NNN) property can be very attractive – the tenant takes on expenses, and you collect steady rent checks. NNN investments are popular for their passive nature and often come with long-term, credit-worthy tenants. On the other hand, a gross lease property (like a multi-tenant office) might offer higher potential rent income, but remember you’ll be actively managing expenses and could face higher variability in net income if costs rise. It’s important to match the lease structure with your investment strategy and risk tolerance. Many investors looking for turnkey, low-touch investments favor NNN leases, while those willing to take on more management for possibly higher returns may consider gross or modified gross opportunities.
• Tenants: Consider your business’s budgeting needs and appetite for handling property-related tasks. With a gross lease, you get simplicity – one consistent bill and the landlord handles the nitty-gritty of property expenses. This can be ideal for businesses that need cost certainty (e.g. startups or companies with fixed operating budgets). However, the trade-off is that gross rent might be higher to account for those expenses. With a triple net lease, you might enjoy a lower base rent, but you must be prepared to pay fluctuating bills for taxes, insurance, repairs, etc., and take on the management of those services. This can work well if you want control over property maintenance (for example, retail tenants who want say in property upkeep or branding). A modified gross lease splits the difference – you’ll handle some costs (and have control over them) while the landlord takes care of others. Always evaluate the specific terms: know which expenses you’ll pay directly so there are no surprises.
• Brokers: Brokers play a key role in aligning lease structures with their clients’ goals. It’s essential to clearly explain these lease types to both sides of a deal. For instance, an investor focused on net lease gas stations or QSR properties might specifically seek NNN leases for the passive benefits. Conversely, a growing business tenant might lean towards a gross or modified gross lease to keep things simple while they expand. As a broker, understanding the client’s priorities (cash flow stability, risk management, operational control, etc.) will inform which lease structure is most appropriate. Ensure that lease terms are well documented and communicated, so both tenant and landlord know their obligations. By matching the right lease structure to the right client and property, brokers can facilitate smoother negotiations and long-term satisfaction for both parties.

Ultimately, there is no one-size-fits-all answer to which lease type is best. An investor who wants to minimize hassle might accept a slightly lower return for an NNN property with a reliable tenant. A tenant might be willing to take on a NNN lease in exchange for a prime location and lower initial rent. A lot depends on the market norms for the property type as well – for example, single-tenant retail is often NNN by nature, whereas multi-tenant office leases tend to be gross or modified. Understanding these structures allows all parties to weigh the trade-offs and make informed decisions that align with their financial and operational objectives.

Explore Commercial Properties by Type on Brevitas

Brevitas is a leading online marketplace that helps investors, tenants, and brokers discover commercial real estate opportunities worldwide. The platform makes it easy to search for properties by various criteria – including filtering by keywords like “NNN” for triple net deals or by specific property types. Brevitas features dedicated property-type tag pages that aggregate listings by category, which is especially useful if you’re focusing on a particular niche. For instance, if you’re interested in a long-term net lease with a gas station tenant or looking to invest in the growing cannabis retail sector, Brevitas allows you to go straight to those categories and see what’s available.

Below is a list of property type tag pages on Brevitas. You can click any category to browse current listings in that sector. These internal links allow you to quickly find properties based on asset type – many of which will highlight the lease structure (NNN, gross, etc.) in their details:

• Quick Serve Restaurants
• Gas Stations
• Pharmacies
• Banks
• Auto
• Retail Big Box
• Fitness / Wellness
• C-Stores (Convenience Stores)
• Motels
• Storage
• Telecom
• Cannabis

Using Brevitas’s search and these category pages, you can filter listings by lease type and property type to find the deals that best match your investment or business needs. Brevitas not only gives you access to a wide range of listings (from NNN retail investments to gross lease office spaces), but also provides the tools to analyze and compare those opportunities. By taking advantage of these filters and tags, investors can quickly pinpoint opportunities like “NNN fast-food restaurant for sale,” tenants can find available spaces with their preferred lease terms, and brokers can source listings tailored to their clients’ requirements. In short, Brevitas streamlines the process of finding the right commercial property, no matter which lease structure you prefer.

References

• Investopedia: Triple Net Lease (NNN)
• Investopedia: Gross Lease
• PropertyMetrics: What is a Modified Gross Lease?