NNN Lease
vs
Gross Lease
A NNN (triple net) lease passes property taxes, insurance, and common area maintenance to the tenant on top of base rent, while a gross lease charges the tenant a single all-inclusive rent with the landlord paying all operating expenses.
TL;DR
NNN leases reduce landlord exposure to expense inflation and trade at lower cap rates. Gross leases shift all expense risk to the landlord and typically appear in residential, older office, and short-term commercial contexts.
What is NNN Lease?
A triple net (NNN) lease is a commercial lease in which the tenant pays base rent plus three reimbursed expense categories: property taxes, building insurance, and common area maintenance (CAM). Classic NNN leaves the landlord responsible for roof, structure, and major capital items. Absolute NNN pushes those too. NNN is dominant in single-tenant retail, most industrial, and many medical properties.
What is Gross Lease?
A gross lease (or full-service lease) charges the tenant a single rent number that is intended to cover all occupancy costs. The landlord pays property taxes, insurance, operating expenses, and maintenance out of the rent. Pure gross leases are most common in residential and some older office product. Variants like modified gross split certain expenses.
Side by side
NNN Lease vs Gross Lease — the differences.
| Dimension | NNN Lease | Gross Lease |
|---|---|---|
| Tenant pays | Base rent + taxes + insurance + CAM | Single all-inclusive rent |
| Landlord responsible for | Structure, roof, capex (in classic NNN) | All operating expenses and capex |
| Expense-inflation risk | Tenant | Landlord |
| Typical market | Single-tenant retail, industrial, medical, net-leased portfolios | Residential, older office, short-term commercial |
| Common cap rate | Lower — reflects operational simplicity | Higher — reflects expense risk to landlord |
| Lease terms | Long (10–25 years with options common in single-tenant NNN) | Shorter (1–5 years typical in office) |
| Rent escalations | Predictable bumps (1.5–2% annual, or 10% every 5 years) | Highly variable; often tied to gross rent renewal |
| CAM reconciliation | Annual recs with audit rights for sophisticated tenants | No tenant recon — landlord absorbs variance |
When to use NNN Lease
- You want predictable rent income with limited expense exposure
- You're buying single-tenant retail, industrial, or medical property
- You prioritize operational simplicity over higher-yield complexity
- The tenant has credit and wants to control its own operating costs
- You're using property as long-term income replacement (e.g., NNN replacement in a 1031)
When to use Gross Lease
- You're the tenant and want cost certainty with no recon surprises
- You're a short-term occupier who doesn't want to manage expenses
- You're leasing in a multi-tenant building where expense sub-allocation is complex
- You're landlord of older office and need to price a single rent number to compete
- You value simplicity over maximum rent optimization
Verdict
NNN is the modern landlord-preferred structure for institutional CRE. Gross leases have narrowed primarily to residential and specific older office product. Modified gross (a hybrid) is common in multi-tenant office and bridges the two. Always read the lease — the label matters less than what each expense clause actually says.
Frequently asked questions
Is a NNN lease better for the landlord or tenant?
Generally more landlord-favorable — expense risk shifts to the tenant. In exchange, tenants in NNN deals typically get longer terms, more predictable rent escalations, and more operational control over the property they occupy.
What's the difference between NN and NNN?
A double net (NN) lease passes two of the three expense categories — typically taxes and insurance — with the landlord retaining CAM. Triple net (NNN) passes all three. Terminology varies; read the lease.
What is modified gross lease?
A modified gross lease charges the tenant a base rent that covers operating expenses up to a base-year level. Any increases above that base year are passed through. Common in multi-tenant office.
Can rent escalations be capped in a NNN?
Yes — tenants commonly negotiate caps on CAM increases (e.g., no more than 5% annually) and exclusions for capital items. Landlords negotiate back. Read the CAM exclusions clause carefully.