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Learn about basic commercial real estate lease types such as full service, net and modified as well as their intended uses. 

Understanding the Different Types of Commercial Real Estate Leases


Leasing occupies its own particular corner of commercial real estate landscape, complete with specialized practitioners who represent tenants and landlords big and small. And while it’s the giant-square-footage commercial property transactions with complex clauses that make the headlines, it’s the smaller leases that make up bread-and-butter negotiations. Regardless of size, however, commercial lease agreements generally start out by building upon one of several basic formats that are then customized to meet the needs of both parties. In this article we are going to review the basic types of commercial real estate leases such as full service, net and modified as well as their intended uses. 

Full Service Lease / Gross Lease  

You may think that a full-service lease and a gross lease are two different entities, but they are actually two terms that mean the exact same thing and are used interchangeably.  

Full-service leases are one of the simpler and more predictable of the commercial real estate lease structures. They generally involve a single, all-inclusive rental rate that includes both the base lease rate and the building’s operating expenses (property taxes, insurance and common area maintenance) combined into one amount.   

The full-service format is a good option for tenants whose business model requires a consistent monthly payment without surprise costs such as unexpected repairs that are charged back to the tenant.     

Many full-service leases have a built-in expectation that the tenant bears responsibility for any increase in operating expenses starting in the second year and continuing forward. Operating expenses in a full-service lease arrangement may be either included in the lease rate or billed separately to the tenant.  

Net Lease

A net lease — of which there are several subtypes — is one where the tenant pays for their rental space plus one or more additional expenses related to the operation, maintenance and usage of the property that a landlord would typically pay, such as property taxes, insurance premiums, landscaping services, utilities and repairs.  

Unlike the stable payment structure of a full lease, net leases have the potential for widely fluctuating costs and can be challenging for those clients who struggle to budget for overhead expenses.  

Net-lease arrangements do, however, typically have lower monthly payments than a gross lease because the tenant is assuming owner-type responsibility for pre-determined regular upkeep and surprise maintenance that may (or may not; it’s a calculated gamble) become necessary. This arrangement also puts the onus on the tenant for hiring contractors and overseeing the scope of work, in addition to paying for it.  

Net leases typically require tenants to pay the property taxes and insurance premiums directly to the landlord, so they can verify payment and distribute funds to the appropriate places.  

Single-Net Lease 

Also known as net or N leases, the single-net lease requires the tenant to pay for property taxes in addition to rent. This type of net lease involves the least amount of risk for the tenant because while property taxes can increase, it’s usually a small jump and comes only when property taxes are reassessed. Tenants with this arrangement often pay a lower rent than a standard lease due to the added costs.  

Double-Net Lease

Also known as net-net or NN leases, the double-net lease is considered the most common type of commercial real estate lease and requires the tenant to pay for property taxes and insurance premiums. Both of these costs have the potential for increases, but both also tend to be minor and to be adjusted on predictable time scales.  

Like single-net leases, the rental fee of a double-net lease is lower due to the higher associated costs. Landlords retain sole responsibility for any maintenance fees related to the property, which helps ensure consistent payments.   

Triple-Net Lease

Also known as a net-net-net or NNN leases, the triple-net lease specifies that the tenant is responsible to pay rent and all additional expenses, including taxes, insurance premiums and maintenance.   

Base rent is less in such situations since the tenant is taking on the cost of operating the building, but they are also ripe for tenant attempts to terminate when faced with unexpected expenses. For this reason, many triple-net-leases are set up as bondable by the landlord to ensure that the contract cannot be modified until it runs out.   

Modified-Net Lease

Got a tenant or a landlord who wants to incorporate special conditions into a net lease? It’s now considered a modified-net lease and is more often the rule rather than the exception.  

Modified leases tend to be common in the retail or industrial sectors or for other properties with multiple tenants. In addition, tenants who want a triple-net lease but need a scaled-down version often negotiate for the creation of special terms for expected and unexpected shared costs that satisfy the needs of both parties.  


So, there you have it, a basic understanding of the building blocks of the commercial real estate lease. Of course, things get more complex from here, with a long list of negotiable elements and subclauses that are commonly part of a lease. If topics such as end date, renewal, lease option, sublease, exclusive right and rent escalation are up your alley, a gig as a commercial leasing specialist maybe well in your future. 


Inside The Story

About Lisa McDuffie

Lisa McDuffie arrives at ConnectCRE via REALTOR® world, where she served for nearly two decades as communications director for one of the nation’s largest REALTOR® organizations. She supported two membership-elected presidents who were commercial real estate practitioners, and managed the communications initiatives of the organization’s commercial special interest group. When not following the latest commercial real estate news, Lisa is zeroed in on her charismatic off-the-track thoroughbred as she makes the transition from an utterly failed racehorse to a lovely show hunter.

  • ◦Lease
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