Who Pays for What? 8 Types of Commercial Real Estate Leases to Know

There are nearly a dozen types of commercial real estate leases out there, each with their own rent, fee, and expense arrangements.

What are the different types of commercial leases? Who pays property taxes on a commercial lease? Who pays insurance? That’s critical to understanding both your responsibilities and your risk as a tenant or landlord.

Which type of lease are you currently under? What are your responsibilities in a modified gross lease, net lease, or absolute lease?

Use this guide to light the way.

8 Types of Commercial Real Estate Leases

The breakdown of property expenses is the main differentiator among commercial real estate leases. In some, the landlord assumes all responsibility (and costs) for maintaining, powering, and insuring the property, while in others, tenants do — either in full or in part.

Here are 8 of the most common commercial leases and how responsibilities break down under each.

LEASE TYPE	TENANT PAYS	LANDLORD PAYS
Gross	Rent	Taxes Insurance All utilities and maintenance of entire building
Modified Gross	Rent Utilities and maintenance of individual units	Taxes Insurance Utilities and maintenance of common areas
Net	Rent Utilities Fixed portion of operating expenses	Varies depending on what type of net lease
Single Net	Rent Utilities Fixed portion of property taxes	Portion of taxes Property insurance Utilities and maintenance of common areas Repairs
Double Net	Rent Utilities Fixed portion of property taxes and insurance	Portion of taxes and insurance Utilities and maintenance of common areas Repairs
Triple Net	Rent Utilities Fixed portion of property taxes, insurance, and common area maintenance	Portion of taxes, insurance, and common area maintenance Repairs
Absolute Net	Rent All property taxes, insurance, utilities, common area maintenance, and repairs	None
Percentage	Rent Percentage of monthly sales	Taxes Insurance All utilities and maintenance of entire building

 

Gross Lease

Also called a “full service” lease, gross leases put all operating expenses in the landlord’s hands. These include taxes, utilities, maintenance (outside and in), cleaning, and insuring the property, while tenants only pay a basic rent.

Modified Gross Lease

A modified gross lease is one step down from a gross or full service lease, requiring the landlord to handle insuring the property and maintaining common areas, but leaving the utilities, cleaning, and maintenance of individual units to the tenant. The tenant also pays a base rent.

Net Lease

With a net lease, the tenant pays rent plus a fixed fee for operating expenses — things like common area maintenance, taxes, insurance, etc. There are 4 different types of net leases (see below).

Single Net Lease (N Lease)

In a single net lease, the tenant pays their rent, plus a share of the property tax burden. They’re also responsible for the utility costs, maintenance, and other fees associated with their individual unit.

Double Net Lease (NN Lease)

A double net lease is one step above a single net lease. In addition to paying rent and a share of the property taxes, they also pay a portion of the property’s insurance premiums.

Triple Net Lease (NNN Lease)

Triple net leases are one of the most widely used types of commercial real estate leases. In this arrangement, the tenant pays rent, a share of property taxes, a share of insurance, and a fixed fee for common area maintenance and operating expenses.

Absolute Net Lease

Also called an absolute lease or an absolute triple net lease, these agreements put all of the building’s financial responsibilities on the tenant, including taxes, maintenance, insurance, repairs, and more. This gives them control and freedom on the property, but it also means full liability in the event of a catastrophe or total loss.

Percentage Lease

This is a common lease in shopping centers in malls and retail spaces, requiring tenants to pay a base rent, plus a percentage of their monthly sales. The percentage goes toward building operating expenses and maintenance, though there is no set fee for these costs.