Commercial leases are not one-size-fits-all. The structure you choose determines who pays for property taxes, insurance, and maintenance — and that allocation shapes the rent, the risk, and the long-term economics for both owner and tenant.
What a lease structure actually controls
Every commercial lease answers the same core question: beyond base rent, who is responsible for the building’s operating costs? Those costs generally fall into three buckets — property taxes, building insurance, and maintenance (including common area maintenance, or CAM). How a lease divides those buckets is what gives each structure its name.
In a true net lease, the tenant pays some or all of these costs on top of base rent. In a gross lease, the landlord absorbs them and builds an estimate into a single rent figure. Most real-world leases land somewhere on the spectrum between those two poles. Understanding where a given deal sits is the first step to comparing offers accurately.
Net leases: single, double, and triple-net
Net leases shift operating costs onto the tenant in increasing degrees:
- Single net (N): Tenant pays base rent plus property taxes. Landlord covers insurance and maintenance.
- Double net (NN): Tenant pays base rent plus taxes and insurance. Landlord typically retains responsibility for structural and major systems maintenance.
- Triple-net (NNN): Tenant pays base rent plus taxes, insurance, and maintenance/CAM. The landlord’s income is closer to “net” of operating expenses.
Triple-net is the most common structure for single-tenant freestanding buildings and many industrial and retail properties. For owners, NNN delivers predictable income with minimal management burden, since the tenant shoulders variable costs like rising taxes. For tenants, base rent is lower, but they take on the risk of cost increases — which is why caps on controllable expenses and clear definitions of what counts as a recoverable cost are heavily negotiated. Even in a “triple-net” deal, landlords often keep responsibility for the roof, foundation, and structural elements, so the precise wording matters more than the label.
Modified gross: the middle ground
A modified gross lease splits operating costs between the parties rather than assigning them entirely to one side. A typical arrangement has the tenant pay base rent plus its own utilities and interior upkeep, while the landlord handles taxes, insurance, and structural maintenance — or the parties agree to share increases above a base year amount.
Modified gross is widely used in multi-tenant office buildings because it offers a balance: tenants get more predictable costs than under NNN, and landlords retain some protection against rising expenses. The key negotiating points are which costs are included, what the base year is, and how increases are measured and passed through.
Full-service (gross) leases
In a full-service or gross lease, the tenant pays one all-in rent number and the landlord covers taxes, insurance, maintenance, utilities, and often janitorial services. This is common in traditional office leasing, where simplicity is a selling point.
The catch for tenants is the expense stop or base year clause: landlords usually pass through increases in operating costs above the first year’s level. So a “full-service” rent is rarely fully fixed over a multi-year term. For owners, gross leases are easy to market but require careful expense estimating, because under-projecting costs eats directly into the return.
Percentage leases for retail
A percentage lease is built for retail. The tenant pays a base rent plus a percentage of gross sales above an agreed breakpoint. It aligns the landlord’s upside with the tenant’s performance — common in shopping centers and high-traffic retail corridors.
For owners, percentage rent captures a share of a strong tenant’s success and can outperform flat rent in busy locations. For tenants, it keeps fixed costs lower in slower periods. Both sides should pin down how gross sales are defined, what exclusions apply (returns, online orders fulfilled elsewhere), and the landlord’s audit rights.
Ground leases
A ground lease is a long-term lease of land, typically 30 to 99 years, on which the tenant builds and owns improvements during the term. At expiration, the building usually reverts to the landowner. Ground leases are used when an owner wants to monetize land without selling it, and when a developer wants to control a site without the capital cost of buying it.
These are almost always structured on a net basis: the ground tenant pays taxes, insurance, and all maintenance and is responsible for the improvements. They are complex, financing-sensitive instruments, and terms around rent resets, financing protections (such as lender cure rights), and end-of-term ownership deserve close attention.
Bottom line
The right structure depends on property type, tenant profile, and how each side wants to allocate risk: NNN and ground leases push costs and control to the tenant, gross and full-service leases keep them with the landlord, and modified gross and percentage leases sit in between. Read past the label to the actual cost-allocation and pass-through language, because two leases with the same name can behave very differently. Sterea Realty Group handles commercial leasing across every one of these structures.
This article is for general informational purposes and is not legal, tax, or financial advice. Rules change and the specifics vary by property — consult a qualified professional about your situation.