What is the difference between NET and Gross?

A Net Lease and a Gross Lease are two common types of commercial leases, each with distinct characteristics. Here’s an explanation of the key differences between these lease types:

Gross Lease: In a gross lease, the tenant pays a single, fixed rent amount to the landlord, who then assumes responsibility for most, if not all, of the property’s operating expenses. These expenses typically include property taxes, insurance premiums, maintenance costs, utilities, and janitorial services. Essentially, the tenant’s rent covers all these expenses, and they are not directly responsible for their payment. This type of lease provides simplicity and predictability for tenants, as they know the total amount they need to pay each month.

Net Lease: In contrast, a net lease requires the tenant to pay not only the base rent but also a proportionate share of specific operating expenses related to the property. The three primary types of net leases are Single Net Lease (N Lease), Double Net Lease (NN Lease), and Triple Net Lease (NNN Lease). The distinction among these lies in which expenses the tenant is responsible for.

Single Net Lease (N Lease): The tenant pays the base rent plus a portion of property taxes, while the landlord typically covers other operating expenses like insurance and maintenance.

Double Net Lease (NN Lease): In addition to property taxes, the tenant also shares the responsibility for insurance premiums. Maintenance costs may still be the landlord’s responsibility.

Triple Net Lease (NNN Lease): The tenant assumes the base rent along with all three major expenses: property taxes, insurance premiums, and maintenance costs. The tenant effectively takes on a more significant portion of the property’s financial obligations, including repairs and maintenance.

Net leases allow landlords to shift a portion of the property’s operating expenses onto the tenant. These leases often provide more flexibility for the landlord in terms of costs, while tenants have a better understanding of their share of financial responsibilities.

It’s worth noting that some leases may fall between the two categories, incorporating elements of both net and gross leases. These hybrid leases can vary in their specific terms and allocation of expenses, depending on the agreement reached between the landlord and tenant.

When considering leasing a commercial space, it’s essential for tenants and landlords to clearly understand the lease terms, including whether it is a net or gross lease. This understanding helps both parties anticipate their financial obligations and determine which type of lease best suits their needs and preferences.