The 3 Most Common Types of Commercial Leases
If you're planning to lease commercial real estate, it can be hard to understand the different types of leases. Each one includes different costs, so knowing how they work can help you plan your budget more accurately.
There are three primary types of commercial leases:
- Full-service gross leases.
- Percentage leases.
- Net leases, which has two main subcategories — double net leases and triple-net leases.
Here's a quick comparison of the three most common commercial lease types and how expenses are typically shared:
| Lease Type | Who Pays Operating Costs? | Best Used For |
|---|---|---|
| Gross Lease | Landlord pays most or all expenses (taxes, insurance, maintenance) | Office buildings and multi-tenant properties |
| Percentage Lease | Tenant pays base rent plus a percentage of gross sales | Retail properties and shopping centers |
| Net Lease | Tenant pays most or all expenses (varies by lease type) | Single-tenant retail, restaurant, or industrial space |
1. Full-Service Gross Lease
A full-service gross lease, or gross lease, is the simplest type of commercial lease, where the landlord charges a single monthly payment that includes property taxes, insurance, maintenance, and common area maintenance fees.
This lease structure is most common in multi-tenant office buildings and upscale retail properties. While the bundled rate is generally higher than other lease types, it offers predictable expenses. Some agreements, known as "modified gross leases" exclude utilities or other tenant costs, with many including expense caps to limit overages.
Take a look at some available listings below to get an idea of properties that are often offered with full-service gross leases.
Office Space For Lease
Modified Gross Lease
A modified gross lease is a combination of a gross lease and a net lease. In this structure, the tenant pays a base rent plus certain building operating costs, such as utilities, janitorial services, and sometimes property taxes or insurance. Unlike a full-service gross lease, this type of agreement splits specific expenses between the landlord and tenant, offering a balanced and flexible approach to cost-sharing.
Similarly, flexible lease arrangements like a master lease give tenants operational control and the ability to sublease while balancing cost responsibilities. This adaptability makes both options suitable for tenants looking to optimize costs and control.
2. Percentage Lease
Percentage leases are most commonly used for retail properties, especially in malls. In a percentage lease, tenants pay a base rent plus a percentage of their gross sales. This setup allows tenants to keep rental costs low during slower sales periods and only pay more when their revenue increases.
The base rent is usually lower than in other lease types, providing initial affordability. The percentage of sales paid to the landlord typically ranges from 5% to 10%, depending on the agreement. Often, a percentage lease includes a breakpoint, a minimum revenue threshold that must be exceeded before the extra percentage fee applies. This type of lease incentivizes landlords to support tenant success, as their income directly benefits from higher tenant sales. It’s a flexible option for businesses expecting variable income.
Take a look at some available listings below to get an idea of retail properties for lease near you, many of which may feature percentage lease arrangements.
Retail Properties For Lease
3. Net Leases: Single, Double, and Triple Net Explained
A net lease refers to a lease structure where the tenant pays a base rent and is also responsible for directly covering specific building-related expenses.
Because tenants take on additional costs like property taxes, insurance, maintenance, and utilities, the base rent for a net lease is typically lower than in a gross lease. These lease structures shift more financial responsibility to the tenant, which can offer cost control in exchange for higher risk.
The most common types of net leases are single net (N), double net (NN), and triple net (NNN). Here's a side-by-side comparison of how expenses are divided in each:
| Lease Type | Tenant Pays | Landlord Pays |
|---|---|---|
| Single Net (N) | Base rent, property taxes, utilities, janitorial | Insurance, CAM |
| Double Net (NN) | Base rent, property taxes, insurance, utilities, janitorial | CAM |
| Triple Net (NNN) | Base rent, property taxes, insurance, CAM, utilities, janitorial | None |
Net leases are especially common in single-tenant properties like freestanding restaurants, chain retail locations, and certain industrial buildings. Take a look at the listings below to see available restaurant properties often offered with net lease agreements.
Restaurants For Lease
Single-Net Lease
Single-net leases are not very common, but in this type of structure tenants pay a base rent plus their pro-rated share of the building's property taxes. Tenants also typically pay for their own utilities and janitorial service. The landlord covers all other expenses, including insurance premiums and CAM charges.
Double-Net Lease
Often displayed as "NN" in property listings, double net leases charge the tenant a base rent plus the tenant's share of property tax and insurance premiums. Tenants also pay for their own utilities and janitorial expenses.
What the tenant does not pay for in a double-net lease are common area maintenance fees. These may include expenses for equipment, supplies, maintenance and any necessary repairs of the lobby, restrooms, elevators, stairwells and hallways, as well as the salary of a lobby attendant or security guard. These costs are covered by the landlord.
Triple-Net Lease
The triple-net, or "NNN," lease, charges tenants a base rent, and tenants are then responsible for paying their own utilities and janitorial expenses, in addition to their share of the property tax, insurance premiums and CAMs.
The base rent for a triple-net lease is often a lower cost due to the fact that the tenant is responsible for all the associated charges of the property. Triple-net leases are one of the most common types of commercial leases.
Triple-net leases are beneficial for tenants as they allow them to pay their fair share of building expenses, and depending on individual usage, some tenants can save on costs compared to a gross lease. However, this lease type also comes with risks considering the tenant bears all the responsibility for expenses. Tenants can consider negotiating a cap on expenses in a net lease structure, especially if the building is older and may need frequent repairs.
Absolute Net Lease
An uncommon variation known as an absolute net lease or "bondable lease" holds the tenant responsible for paying rent, expenses and for all repairs to the building. The tenant is responsible for these items regardless of the building's condition, even if it becomes condemned, and also for rebuilding it in the event of a disaster. This type of lease is mostly used by landlords who have borrowed heavily to finance the property and pledge the rent money as a security for the debt, and it puts all risk on the tenant.
No matter what type of lease structure a building utilizes, it's a contract — and contracts are negotiable. With so many lease items to consider, you're likely to find trade-offs or concessions that will result not only in a signed deal, but an amicable relationship that lasts for the duration of the multi-year lease. As always, it's prudent for tenants to consult a tenant representative broker and legal professional when drafting and negotiating lease terms for a property.
Closing Thoughts
Now that you understand the different types of commercial leases, you're better equipped to make informed decisions about your next business space. Each lease type offers unique advantages and considerations, so it's crucial to carefully evaluate your options. To explore available properties and find the right fit for your business, browse available commercial real estate for lease.
Commercial Real Estate For Lease
