What is a net lease vs gross lease?
Asked by: Burdette Schimmel | Last update: February 12, 2026Score: 5/5 (15 votes)
A gross lease has a single, flat rent payment where the landlord covers most operating expenses (taxes, insurance, maintenance), offering predictability for tenants, while a net lease involves lower base rent but requires tenants to pay additional costs like taxes, insurance, and common area maintenance (CAM), shifting more risk and responsibility to the tenant. The main difference is who pays the property's operating expenses, with gross leases being simpler and net leases passing more costs (like in a triple net lease, or NNN) to the tenant.
What is a gross lease vs. a net lease?
In a triple net lease, the tenant pays the base rent plus expenses for common area maintenance (CAM), property taxes, and property insurance. In a gross lease, the tenant pays a fixed rent, and the landlord covers all other property expenses. This makes it simpler for the tenant but often results in a higher rent.
Who benefits most from nnn leases?
Who benefits from NNN Leases? For the most part, it is the Landlord/investor that benefits from a NNN structure lease. With fewer financial responsibilities, a NNN Lease offers less overall risk for investors.
What are the drawbacks of a net lease?
Cons of net leases
Tenants must spend time on administrative tasks, such as negotiating maintenance contracts, buying insurance, and paying property taxes. Tenants have control over maintenance and can ensure the upkeep is up to their standards.
What are the risks of an NNN lease?
NNN lease risks include single-tenant dependence (income loss if they default), deferred maintenance by tenants (leading to high costs later), lack of flexibility (fixed rents can lag market/inflation), unexpected expense spikes (taxes, insurance, big repairs), and issues like market obsolescence, especially for single-location properties, leaving landlords responsible for costly re-tenanting or renovations.
Gross Lease vs Net Lease - Commercial Real Estate Leasing Structures Explained - Landlord vs Tenant
What does the landlord pay in a triple net lease?
In a triple net lease (“NNN lease”), landlords transfer the financial responsibility for property taxes, insurance premiums, and maintenance expenses to tenants, who pay these costs in addition to the base rent.
What is the 90% rule in leasing?
The 90% rule in leasing, primarily under U.S. GAAP, is an accounting guideline to classify a lease as a finance lease (like a purchase) versus an operating lease, stating that if the Net Present Value (NPV) of lease payments is 90% or more of the asset's Fair Market Value, it's treated as a finance lease, reflecting that the lessee essentially buys the asset over the lease term. It's one of several criteria, but it remains a commonly used benchmark for "substantially all" of the asset's value, even with newer standards.
What is the 1% rule when leasing?
The 1% lease rule is a quick guideline for evaluating car lease deals, suggesting a good lease has a monthly payment (excluding tax) around 1% or less of the car's MSRP (e.g., $400/month for a $40k car), while deals over 1.25% to 1.5% are often average to poor, requiring negotiation; it's a useful initial filter but doesn't capture all costs like fees, mileage, or incentives.
Are NNN leases good for landlords?
Limits Overhead Costs
Another huge benefit for landlords in NNN leases is that they have very few overhead costs. They may be responsible for some maintenance at the property, but the overhead cost is significantly reduced with triple net leases.
What are red flags in a lease?
Here are some red flags to watch out for when signing a lease: Unclear terms: Ensure every term in the lease is clear. Vague language can lead to misunderstandings about responsibilities and rights. Maintenance responsibilities: Check who handles repairs.
Who is responsible for the roof in an NNN lease?
Triple Net Lease (NNN): Tenants typically bear responsibility for roof maintenance, repairs, and replacement, along with costs like property taxes and insurance.
How to avoid NNN lease pitfalls?
Hidden Dangers in NNN Leases
From outdated HVAC systems to poorly maintained roofs, these issues can lead to unexpected expenses and operational disruptions. It's crucial to conduct a thorough inspection and review the lease terms carefully to avoid these common traps.
What happens at the end of a NNN lease?
Lease termination and renewal (sometimes referred to as extension) are two possibilities that can happen at the end of the NNN lease's initial lease term. Tenants have the option to either leave or continue for an additional period. Lease termination happens if they break the lease and leave the property.
Who typically uses net leases?
In practice, net leases are commonly used in commercial real estate to provide landlords with a steady income and minimize property management duties. Tenants benefit from lower base rent compared to gross leases and greater control over property operations.
What are hidden costs in NNN leases?
The added expenses or “nets” include taxes, property insurance, and operating expenses, which are all of the costs associated with operating the property including repairs, maintenance, trash removal, landscaping, parking lot maintenance, property management, and so forth.
Does a net lease include property taxes?
This is a breakdown of the key components of a Triple-Net lease in California: Property Taxes: In a NNN lease, the tenant is responsible for paying property taxes associated with the leased space. This includes any assessments or increases in property taxes over the lease term.
What is the 2% rule in rental property?
The 2% Rule in rental property investing is a quick screening tool where investors look for properties where the monthly rent is at least 2% of the purchase price, indicating strong cash flow potential (e.g., a $100,000 house should rent for $2,000/month). It's a simple guideline to identify promising deals but ignores crucial factors like expenses, financing, and location, requiring deeper analysis for actual profitability, especially in costly markets where it's harder to achieve.
What are the disadvantages of nnn?
Triple Net (NNN) leases have disadvantages like high tenant responsibility for costs (taxes, insurance, maintenance), significant tenant dependency (risk if the tenant fails), long-term financial commitment locking in rates, potential for high repair costs when leases end, and limited landlord control over property upkeep. For landlords, there's risk in finding stable tenants for specialized spaces, while tenants face unpredictable expenses and upkeep burdens.
What do landlords fear the most?
What Landlords Fear Most. We conducted a pre-Halloween survey where we asked the question, “What is the scariest part of being a landlord?” Of the options offered, ranging from tenant screening worries to foreclosures and finance, one area emerged as a strong concern: that a tenant would damage a rental unit.
What is the 90% lease rule?
A lease is classified as a capital lease if it meets any of the following criteria: the lease term covers 75% or more of the asset's useful life, includes a bargain purchase option, transfers ownership to the lessee at the end, or if the present value of lease payments exceeds 90% of the asset's market value.
Is it smart to put 10k down on a lease?
It's common for a down payment on a new car loan to be 20% of the vehicle's purchase price. For used cars, you might be able to put down 10%. Applying a larger down payment is a way to avoid owing more on the loan than the car is worth. When leasing a vehicle, you should put down only what is required.
What are the 4 types of leases?
The four main types of commercial leases, differing by how operating costs are shared, are Gross Lease, Net Lease (Single, Double, Triple), Modified Gross Lease, and Percentage Lease, with the key distinction being who pays for property taxes, insurance, and maintenance (NNN) in addition to base rent.
How many years should you have left on a lease?
Banks and building societies differ in their lending criteria. Some draw the line at 75 years remaining on the lease; others may be happy with anything over 70 years. Below 60 years, it may be difficult to get a mortgage at all. However there are ways to overcome the “short lease” problem.
What are the 5 lease tests?
If the lease meets any of the criteria, then it must be recorded as a finance lease. The five criteria relates to a bargain purchase option, transfer of ownership, net present value of lease payments, economic life, and whether the asset is specialized.
What is the rule of thumb for a good lease deal?
Use the “1% rule” as a quick guideline: your monthly payment should be about 1% of the car's MSRP. For example, a $30,000 car should lease for around $300 per month.