In a gross lease, the tenant pays one flat rent and the landlord pays the property’s operating costs. In a net lease, the tenant pays a lower base rent plus some or all of those costs, usually property taxes, insurance and maintenance.
That is the short answer. The difference comes down to who pays the operating expenses and, more importantly, who carries the risk when those costs go up. Below is a side by side comparison, a worked example, the pros and cons and how to choose, for business owners signing a commercial lease and for owners leasing out a building.
Gross Lease vs Net Lease at a Glance
The main difference is who pays operating expenses. Here is how the 2 structures compare.
| Factor | Gross lease | Net lease |
|---|---|---|
| What the tenant pays | One flat rent | Base rent plus operating expenses |
| Base rent | Higher | Lower |
| Property taxes, insurance, maintenance | Landlord | Tenant, in whole or in part |
| Monthly payment | Predictable | Can change |
| Who carries the risk of rising costs | Landlord | Tenant |
| Who controls upkeep | Landlord | Often the tenant |
| Commonly used for | Office and multi-tenant space | Retail, industrial and single-tenant buildings |
Neither one is automatically cheaper. A landlord prices those expenses into a gross rent, so you pay them either way.
How a Gross Lease Works
A gross lease is the simplest commercial lease: the tenant pays one fixed rent, and the landlord pays the taxes, insurance and maintenance out of it. A tenant gets a predictable payment and little paperwork. Because the landlord takes on the risk of rising costs, the rent is usually higher.
There are 2 common forms:
- Full-service lease – The rent covers nearly everything, often including utilities and janitorial. Common in multi-tenant office buildings.
- Modified gross lease – The tenant and landlord share the costs, as the lease spells out. For example, the tenant may pay utilities and janitorial while the landlord pays taxes and insurance.
A gross lease works well for a tenant that values certainty. Landlords should be careful with a tenant that uses a lot of utilities, because in an all-inclusive rent, the landlord pays for that.
How a Net Lease Works
Net leases separate rent from expenses: the tenant pays a lower base rent and then pays some or all of the property’s costs on top. The more “nets” in the lease, the more the tenant pays.
- Single net lease – Base rent plus property taxes.
- Double net lease – Base rent plus property taxes and insurance.
- Triple net lease – Base rent plus property taxes, insurance and maintenance.
- Absolute net lease – The tenant pays everything, including roof and structure.
Triple net leases are among the most common commercial leases. For the full breakdown, see what a triple net lease is.
Definitions vary. A modified gross lease and a double net lease can end up being nearly the same deal, so read what the lease says rather than relying on its label.
Net Lease vs Gross Lease: A Worked Example
The clearest way to compare the 2 is to look at total occupancy cost, and then see what happens when costs rise. These numbers are an example only, not market rates.
Say you are comparing 2 spaces of 5,000 square feet. One is offered at $30 per square foot gross. The other is $22 per square foot net, with operating expenses of $8 per square foot.
| Gross lease | Net lease | |
|---|---|---|
| Rent per square foot | $30 | $22 |
| Expenses per square foot | Included | $8 |
| Year 1 total | $150,000 | $150,000 |
| If expenses rise $2 per square foot | $150,000 | $160,000 |
On day one they cost the same. If costs rise, the net tenant pays the extra $10,000, while the gross tenant pays nothing more until the lease renews. If costs fall or the tenant saves on upkeep, the net tenant keeps the difference. Always compare the total cost, not the base rent.
Pros and Cons of Each Lease
The pros and cons are simple: a gross lease buys predictability, and net leases buy a lower rent and more control. Which one wins depends on how much cost risk you can carry.
Gross lease
- Pro for tenants – One predictable payment and simple budgeting.
- Con for tenants – Higher rent, and less control over how the building is run.
- Pro for landlords – Rent can be higher, and the lease is simple to explain.
- Con for landlords – Rising taxes, insurance and repairs come out of your income.
Net lease
- Pro for tenants – Lower base rent and more control over upkeep.
- Con for tenants – Costs can rise, and year-end reconciliation bills can surprise you.
- Pro for landlords – More predictable income and less day to day management.
- Con for landlords – You rely on the tenant’s credit and on the tenant looking after the building.
How to Choose Between a Net Lease and a Gross Lease
Choose a gross lease if you want a predictable payment, and a net lease if you want control of the space, can absorb cost swings and plan to stay. In many markets, the property type decides for you: office space is often gross or full service, while triple net leases are the norm for retail and warehouse space.
Before you sign either one:
- Ask for recent actual expenses, not just the estimate.
- Compare total occupancy cost over the full term.
- Find out which costs can rise, and whether there is a cap.
- Check who pays for roof, structure and HVAC.
- Have a real estate attorney review the lease.
If you are signing a new lease in Central Minnesota, our sister company Inventure Real Estate represents business owners and can walk you through the numbers.
What This Means If You Own Your Building
If you own the building your business operates in, you already pay every one of these costs yourself. A sale-leaseback usually makes you a net lease tenant: you keep paying those costs, you add rent, and the capital in the building goes back into the business.
Inventure Capital develops, acquires, builds and operates commercial real estate across Minnesota and the Upper Midwest. Read what a sale-leaseback is, see how we approach one or schedule a call to talk through your building.
Frequently Asked Questions
It comes down to who pays operating expenses. In a gross lease, the landlord pays them out of a higher rent. In net leases, the tenant pays them on top of a lower base rent.
The tenant pays one flat rent. The landlord pays property taxes, insurance and maintenance, and often utilities in a full-service lease. A modified gross lease splits some of those costs.
The tenant pays base rent plus a share of expenses, depending on the type: taxes in a single net lease, taxes and insurance in a double net lease, and taxes, insurance and maintenance in a triple net lease.
It is a net lease where the tenant pays only some expenses, or pays them up to a limit, and the landlord pays the rest. The terms vary widely, so the lease itself matters more than the name.
The base rent is lower, but the total may be about the same, because a gross rent already includes those costs. Compare total occupancy cost, then decide how much of the risk of rising costs you want to carry.
This article is general information only. It is not tax, legal or investment advice, and it is not an offer to buy any property or to sell any security.