Triple Net, Gross and Modified Gross Leases

Commercial rent is quoted per square foot per year, but the quote is meaningless until you know what it includes. Three structures cover most of the market.

Triple net (NNN)

The tenant pays base rent plus their share of property taxes, building insurance and maintenance. Headline rent looks low; the landlord's income is more predictable because the volatile costs pass through.

Gross (full service)

The tenant pays one rent and the landlord absorbs operating costs. Headline rent looks high, and the landlord carries the risk that taxes or insurance rise faster than rent.

Modified gross

Somewhere between the two, usually with a base year: the landlord covers costs up to an agreed level and the tenant pays increases above it. Most negotiations end up here.

Why it matters to your underwriting

• A $18/sq ft NNN lease and a $26/sq ft gross lease can produce the same NOI
• Pass-through structures protect NOI when insurance premiums jump
• Recovery clauses are only as good as the tenants' ability to pay them

Read the reconciliation clause

How and when the landlord reconciles estimated recoveries against actual costs determines cash flow timing, and it is a common source of dispute. Get it clear before closing, not at the first year-end.