Commercial Lease Guide

The 6 Types of Commercial Leases

From full service to triple net — understand exactly who pays what in each lease structure, the tenant pros and cons, and which type fits your business before you sign.

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Full Service / Gross Lease

Predictability: High
⚖️

Modified Gross Lease

Predictability: Medium
📋

Net Lease (Single Net)

Predictability: Medium
🔑

Double Net Lease (NN)

Predictability: Medium
🏗️

Triple Net Lease (NNN)

Predictability: Low
📊

Percentage Lease

Predictability: Low
🏢Lease Type 1 of 6

Full Service / Gross Lease

The landlord covers everything — taxes, insurance, utilities, maintenance, and janitorial — bundled into one monthly rent payment. What you see on the rent roll is all you pay.

Tenant Pays

  • ●Base rent (all-inclusive)

Landlord Pays

  • ●Property taxes
  • ●Building insurance
  • ●Utilities (common areas & sometimes suites)
  • ●Maintenance & repairs
  • ●Janitorial / cleaning
  • ●Property management

Pros for Tenants

  • Maximum cost predictability — one payment covers everything
  • No surprise operating expense reconciliations
  • Landlord absorbs cost of inefficient building operations
  • Easy budgeting for finance teams and small businesses
  • No time spent managing operating expense disputes

Cons for Tenants

  • Base rent is typically higher to cover landlord expense risk
  • Tenant pays for other tenants' inefficiencies (shared cost pool)
  • Expense stop provisions can shift costs above a threshold back to tenant
  • Less transparency into actual building operating costs

Best For

Law firms and professional servicesSmall to mid-size office tenants (1–50 employees)Businesses with limited real estate staffTenants in Class A and B office buildings
Expense caps & gross-up strategies →Analyze a Full Lease
⚖️Lease Type 2 of 6

Modified Gross Lease

A hybrid structure where base rent includes some expenses and the tenant pays others directly. The specific split is negotiated — there's no single standard definition.

Tenant Pays

  • ●Base rent
  • ●Negotiated items (often: utilities, janitorial, or specific CAM components)
  • ●Any items above a negotiated expense stop or base year level

Landlord Pays

  • ●Property taxes (typically)
  • ●Building insurance (typically)
  • ●Structural maintenance (typically)
  • ●Common area maintenance (may be shared)

Pros for Tenants

  • More flexible than pure gross or pure net structures
  • Can be customized to each party's risk preferences
  • Tenant controls directly-paid expenses (e.g., can choose cleaning vendor)
  • Base rent is typically lower than full service equivalent

Cons for Tenants

  • "Modified gross" means different things in different markets — verify every term
  • More complex to budget than full-service leases
  • Risk of unanticipated expenses in poorly drafted leases
  • Operating expense reconciliations still common for shared costs

Best For

Businesses comfortable with some expense variabilityTenants in creative office, flex, or mixed-use buildingsCompanies with real estate or operations staff to manage variable costsMedical, dental, and healthcare tenants (common structure)
Understanding expense pass-throughs →Analyze a Modified Lease
📋Lease Type 3 of 6

Net Lease (Single Net)

Tenant pays base rent plus one "net" — typically property taxes. Insurance and maintenance remain with the landlord. Less common than NNN in practice.

Tenant Pays

  • ●Base rent
  • ●Property taxes (pro-rata share)

Landlord Pays

  • ●Building insurance
  • ●Maintenance & repairs
  • ●Operating expenses
  • ●Janitorial / utilities (usually)

Pros for Tenants

  • Lower base rent than gross lease equivalents
  • Tax transparency — tenant sees actual tax bills
  • Landlord still manages most day-to-day operations

Cons for Tenants

  • Property tax exposure can be volatile (assessment changes, appeals)
  • Relatively uncommon — fewer landlords use this structure
  • Tax bills may spike unexpectedly due to building sales or reassessments

Best For

Small freestanding retailTenants with some appetite for tax variabilitySuburban retail in markets where single net is common
Analyze a Net Lease
🔑Lease Type 4 of 6

Double Net Lease (NN)

Tenant pays base rent plus two "nets" — property taxes and building insurance. The landlord retains responsibility for structural maintenance and repairs.

Tenant Pays

  • ●Base rent
  • ●Property taxes (pro-rata share)
  • ●Building insurance premiums

Landlord Pays

  • ●Structural repairs (roof, foundation, major systems)
  • ●Common area maintenance (sometimes)
  • ●Building envelope maintenance

Pros for Tenants

  • Lower base rent than gross lease — more transparent cost structure
  • Tenant controls insurance choices (sometimes)
  • Landlord still responsible for major structural items

Cons for Tenants

  • Tax and insurance expense volatility falls on tenant
  • Insurance requirements may be burdensome (landlord may dictate coverage levels)
  • More administrative complexity than gross leases

Best For

Mid-size retail tenantsIndustrial and light manufacturing tenantsBusinesses with treasury or risk management functions
Analyze a Double Lease
🏗️Lease Type 5 of 6

Triple Net Lease (NNN)

The landlord's dream: tenant pays base rent plus ALL three nets — property taxes, insurance, and all operating/maintenance expenses. Landlord receives truly net income with minimal involvement.

Tenant Pays

  • ●Base rent
  • ●Property taxes (100% or pro-rata)
  • ●Building insurance
  • ●Maintenance & repairs (including roof, HVAC, systems)
  • ●Janitorial / cleaning
  • ●Utilities
  • ●Common area maintenance
  • ●Property management (sometimes)

Landlord Pays

  • ●Structural shell (sometimes, depending on lease language)
  • ●Capital improvements beyond useful life (negotiated)

Pros for Tenants

  • Lowest base rent — structure reflects tenant's assumption of all costs
  • Full transparency and control over building operations
  • Tenant can make operational decisions to reduce costs
  • Common for freestanding properties where tenant controls the building

Cons for Tenants

  • Maximum cost variability — all expense risk on tenant
  • Requires significant operational capability (managing contractors, insurance, tax appeals)
  • Unexpected capital expenditures (roof replacement, HVAC failure) hit tenant
  • Requires experienced real estate and facilities staff to manage effectively

Best For

National retail chains (Walgreens, McDonald's, Dollar General)Industrial and logistics tenants controlling large facilitiesSale-leaseback transactions where tenant becomes responsible occupantTenants with experienced real estate and facilities management
Triple net lease deep dive →Analyze a Triple Lease
📊Lease Type 6 of 6

Percentage Lease

Base rent plus a percentage of the tenant's gross sales above a "natural breakpoint." Aligns landlord and tenant incentives — landlord benefits when tenant succeeds.

Tenant Pays

  • ●Base rent ("minimum guaranteed rent")
  • ●Percentage of gross sales above the natural breakpoint (typically 5–10%)
  • ●Operating expenses (structure varies — can be gross or net)

Landlord Pays

  • ●Varies — percentage leases are often full service or modified gross structures with percentage override

Pros for Tenants

  • Base rent risk is lower — minimum guaranteed is typically below market
  • Landlord has aligned incentives — wants tenant to succeed
  • Provides rent flexibility during slow periods (only base rent if sales below breakpoint)
  • Common in malls and retail — landlords actively support tenant success

Cons for Tenants

  • Gross sales reporting requirements — landlord has right to audit your revenue
  • Lack of privacy — sharing financial performance with landlord
  • Complex to negotiate (breakpoint calculation, exclusions from "gross sales")
  • Highly seasonal businesses can have volatile rent obligations

Best For

Retail tenants in regional malls and lifestyle centersRestaurant tenants with variable revenuePop-up and seasonal retail conceptsBusinesses with confident revenue growth trajectories
Retail lease negotiation guide →Analyze a Percentage Lease

Quick Comparison: All 6 Lease Types

Lease TypeTaxesInsuranceMaintenanceUtilitiesPredictability
Full Service / GrossLandlordLandlordLandlordLandlordHigh
Modified GrossLandlordLandlordSplitTenantMedium
Net (Single)TenantLandlordLandlordLandlordMedium
Double Net (NN)TenantTenantLandlordLandlordMedium
Triple Net (NNN)TenantTenantTenantTenantLow
PercentageVariesVariesVariesVariesLow

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