What's the Difference Between a Gross Lease and a Net Lease?

When negotiating that business lease, it's imperative to know what type of lease your landlord is proposing, because that will determine what your final monthly costs are going to be. By the time you add in the various expenses - maintenance, taxes, common area costs, gas and utilities, etc - you may find that the cost of leasing the space is more than your reevenues can support.

Most commercial leases will fall into one of several categories - gross, double net, triple net and absolute triple net.

Gross Lease: Under a gross lease the tenant pays the rent, the tenant's own utility, phone and wireless bills. The landlord pays all expenses on the premises, including maintenance, repairs and improvements. However all of these costs are included in the amount of the rent, so you'll probably be making a significantly higher monthly rent payment than you would be paying under a net lease.

Triple Net Lease:  The triple net lease (also known as a net net net lease) is a leasing arrangement in which the tenant pays not only the rent but also the costs of building maintenance, insurance and property taxes, and structural and roof repairs and maintenance. This type of lease is often used for warehouses and manufacturing facilities.

Double Net Lease: Under a double net lease the tenant pays for operating and maintenance expenses, taxes and insurance. The landlord is responsible for the roof and structure. This is the most common type of lease used for retail and office space.

Absolute Triple Net Lease: This form of lease places the heaviest burden on the tenant. An absolute triple net lease includes everything that a triple net lease does, but the tenant is also responsible for covering any additional expenses relating to the property that are not included in triple net leases. The landlord has no financial or managerial responsibilities with respect to the tenancy, and is only responsible for making mortgage payments on the land and paying its own income tax.

Percentage Lease: Percentage leases are widely used for shopping center tenants. The rent is calculated as either:

1. a percentage of gross sales;
2. a fixed monthly rent plus percentage of gross sales;
3. the greater of a fixed amount or percentage of sales; or
4. a base fixed amount plus a tiered percentage of sales.

In addition to lease payments and the expenses described above, the tenant also pays a portion of the common area maintenance costs. Depending on the size and age of the building and the number of tenants who are sharing the common area costs, that can amount to a hefty amount each month.