Quick Summary
This guide explains the main types of commercial leases, gross, modified gross, single/double/triple net (NNN), and percentage, and exactly who pays for what under each one. It includes a side-by-side comparison table, definitions of the key lease terms and clauses you’ll run into while negotiating, and a glossary and FAQ covering the most common questions about triple net leases specifically.
Choosing the wrong type of commercial lease, or misunderstanding what a given structure actually obligates you to pay, carries a real financial cost that often doesn’t show up until months into occupancy. The types of commercial leases available, gross, modified gross, net, and percentage, differ specifically in how operating costs like property taxes, insurance, and maintenance get split between landlord and tenant, and that split can swing the effective cost of two otherwise similar spaces by a meaningful margin.
A tenant who signs a triple net lease expecting gross-lease-style cost predictability is going to be surprised by their first CAM reconciliation. This guide breaks down each lease structure, the key terms and clauses that show up across all of them, and how tools like proper lease abstraction help you manage whichever type you end up signing.
Understanding Commercial Real Estate Leases
A commercial lease is a binding agreement between a landlord and tenant outlining the terms for renting business property. Unlike residential leases, commercial leases are typically more customizable, negotiated to fit the specific operational needs of the business renting the space.
Two things sit at the center of every commercial lease: the lease structure, which dictates how costs are divided between landlord and tenant, and the specific terms and clauses, which establish each party’s rights and obligations. Getting the structure right matters for budgeting. Getting the terms and clauses right matters for avoiding disputes later. For the operational side of tracking whichever lease type you sign, lease administration services covers what ongoing management actually requires.
The Main Types of Commercial Leases
Gross Lease
Under a gross lease, the tenant pays a single, all-inclusive rent amount that covers base rent plus operating expenses, property taxes, insurance, and maintenance. The landlord absorbs any fluctuation in these underlying costs, which makes a gross lease the most predictable structure for a tenant’s monthly budget.
This structure is common for smaller offices, startups, and any tenant that specifically values billing simplicity over the potential cost savings of a more variable structure. The tradeoff is that landlords typically price gross leases to build in a cushion for rising operating costs, so a gross lease isn’t necessarily cheaper overall, just more predictable month to month.
Modified Gross Lease
A modified gross lease splits operating expenses between landlord and tenant in a negotiated arrangement that sits between a full gross lease and a net lease. A common version has the landlord covering property taxes and insurance while the tenant handles utilities and janitorial costs within their own space, though the specific split varies considerably by market and negotiation.
This structure appeals to tenants who want some cost predictability without giving up all visibility into what they’re actually paying for, and to landlords who want to share some cost risk without fully shifting it onto the tenant.
Net Leases: Single, Double, and Triple Net (NNN)
Net leases shift some or all operating expenses onto the tenant, on top of base rent, and come in three common variations based on how much gets shifted.
Single net lease (N): The tenant pays base rent plus property taxes. The landlord retains responsibility for insurance and maintenance. This structure is less common than the other net lease variations.
Double net lease (NN): The tenant pays base rent, property taxes, and insurance. The landlord typically retains responsibility for structural maintenance and major repairs.
Triple net lease (NNN): The tenant pays base rent plus property taxes, insurance, and maintenance, essentially all the major operating costs of the property. This is the most common net lease structure in retail and industrial real estate specifically, and the one most people mean when they refer to a “net lease” without specifying further.
A triple net lease gives the landlord a steady, predictable income stream since most cost fluctuation risk shifts to the tenant, which is exactly why NNN structures are so common in single-tenant retail buildings and larger industrial spaces where landlords want a passive income arrangement. For a tenant, the tradeoff is direct exposure to CAM charges, tax increases, and insurance cost changes that a gross lease would have insulated them from.
CAM (Common Area Maintenance) charges are the piece of a triple net lease that generates the most disputes and reconciliation errors, since what counts as a legitimate CAM expense varies by lease and is worth understanding in detail before signing. For a full breakdown of what’s typically included and excluded, see this guide to CAM charges under a net lease.
Percentage Lease
Under a percentage lease, the tenant pays a base rent plus a percentage of gross sales above a specified breakpoint. This structure is common in retail, particularly in shopping centers and malls, where the landlord’s income is partly tied to the tenant’s sales performance.
This arrangement shares risk and reward: the landlord benefits when a tenant’s sales grow, and the tenant typically negotiates a lower base rent in exchange for taking on this variable upside-sharing structure. Understanding exactly how the percentage rent breakpoint is calculated, and what counts as gross sales for that calculation, matters considerably more in a percentage lease than in any other structure covered here.
Lease Type Comparison Table
| Lease Type | Base Rent | Property Taxes | Insurance | CAM/Maintenance | Notes |
| Gross | Tenant | Landlord | Landlord | Landlord | Single all-inclusive payment |
| Modified Gross | Tenant | Negotiated split | Negotiated split | Negotiated split | Split varies by lease |
| Single Net (N) | Tenant | Tenant | Landlord | Landlord | Least common net variation |
| Double Net (NN) | Tenant | Tenant | Tenant | Landlord (structural) | Landlord retains major repairs |
| Triple Net (NNN) | Tenant | Tenant | Tenant | Tenant | Most common in retail/industrial |
| Percentage | Tenant + % of sales | Varies by lease | Varies by lease | Varies by lease | Base rent often lower than market |
Key Lease Terms to Know
Base rent is the fixed amount a tenant agrees to pay, typically billed monthly, before any additional costs specific to the lease structure are added.
CAM (Common Area Maintenance) fees cover costs shared among tenants for maintaining shared spaces like parking lots, lobbies, and common hallways. These are typically part of net lease structures and are one of the most commonly disputed cost categories in commercial leasing.
Operating expenses cover the broader costs of running the property: utilities for common areas, property management fees, and repairs, distinct from and often overlapping with CAM depending on how a specific lease defines the term.
Rent escalation clauses increase rent on a set schedule, either a fixed annual percentage or tied to an index like CPI. Understanding if an escalation is fixed or variable matters directly for long-term budget forecasting.
Tenant improvement (TI) allowance is funds the landlord provides toward customizing the space for the tenant’s specific operational needs, build-out costs that would otherwise fall entirely on the tenant.
Lease term is the length of time the agreement stays in effect, which may be a fixed period or include renewal options that extend it under negotiated terms. Getting all of these terms recorded accurately from the start is what lease data management is built to support, since a misread term at signing quietly produces errors in every calculation that depends on it later.
Common Lease Clauses to Know
Assignment and sublease clause determines if a tenant may transfer their lease or sublease the space to another party, and under what conditions. This matters considerably for a business that might need to exit a location before the lease term ends.
Termination clause specifies the conditions under which either party may end the lease early, often including a fee or a specific notice period. A lease with no termination right at all leaves a tenant fully committed to the term regardless of how business conditions change.
Exclusivity clause prevents a landlord from renting space in the same property to a directly competing business, protecting a tenant’s market position within that specific property.
Force majeure clause outlines exceptions for non-performance due to unforeseen events like natural disasters or other circumstances outside either party’s control. How broadly or narrowly this clause is written became a significant point of negotiation for many tenants and landlords during the pandemic.
Reading every one of these clauses carefully, and consulting someone experienced in lease review when the language is ambiguous, prevents a clause that looked minor at signing from becoming a significant problem years into the lease term.
Glossary and FAQs
NNN stands for triple net, referring to the three major cost categories, taxes, insurance, and maintenance, the tenant takes on in addition to base rent. CAM stands for common area maintenance. TI stands for tenant improvement.
What is a triple net lease?
A triple net lease is a commercial lease structure where the tenant pays base rent plus property taxes, insurance, and maintenance costs, taking on nearly all the property’s operating cost risk. It’s the most common net lease structure in retail and industrial real estate.
What is a gross lease?
A gross lease is a commercial lease structure where the tenant pays a single, all-inclusive rent amount that covers base rent and all operating expenses, with the landlord absorbing any fluctuation in those underlying costs.
What does NNN mean in commercial real estate?
NNN refers to a triple net lease, where the three “nets” are property taxes, insurance, and maintenance, all shifted onto the tenant in addition to base rent. It’s often used in real estate listings to indicate that the quoted rent doesn’t include these additional costs.
How Scribcor Helps You Manage Any Lease Type
Whatever lease structure you’re working with, gross, net, or percentage, the operational challenge is the same: accurately capturing the specific financial terms and obligations that structure creates, then tracking and reconciling them consistently over the full lease term.
Lease abstraction services capture the specific cost-sharing structure, escalation terms, and clauses unique to each lease, such as a triple net lease’s CAM reconciliation terms or a percentage lease’s breakpoint calculation. From there, lease accounting services keep the ASC 842 and IFRS 16 calculations accurate as those terms play out over the lease term, and ongoing administration reconciles CAM and percentage rent charges against what the lease actually specifies rather than accepting a landlord’s total at face value.
Negotiating From a Position of Knowledge
Understanding the types of commercial leases, and the specific terms and clauses that come with each, is what separates a tenant who negotiates from a position of knowledge from one who’s simply hoping the lease works out. The structure determines your cost exposure. The terms and clauses determine how much flexibility and protection you actually have within that structure.
If you want help reviewing a lease you’re considering or managing one you’ve already signed, schedule a Lease Structure Consultation with Scribcor. We’ll walk through the specific terms and show you exactly what you’re committing to.