Gross, net and triple net leases, explained

If you have looked at commercial space, you have seen listings quoting rent as “$24 net” or “$38 gross” and wondered whether the second one is the bargain. Usually it isn’t, or at least not in the way it seems. Those labels describe how a building’s running costs are divided between the landlord and the tenant. Get the label wrong and you can misjudge your real rent by a third or more.

Here is what the terms generally mean, how they show up on your invoice, and what to check before you sign. One warning up front: these labels are industry shorthand, not legal definitions. Two leases both called “triple net” can allocate costs differently. The lease wording is what counts.

The three costs at the centre of it all

A commercial building has three big categories of running cost beyond the mortgage: property taxes, building insurance, and operating and maintenance costs. That third bucket is broad. It typically includes cleaning and security of common areas, snow removal, landscaping, repairs, building staff, common-area utilities and a property management fee. In shopping centres and multi-tenant buildings it is often called common area maintenance, or CAM.

Every lease type is just a different answer to one question: which of those costs are bundled into the rent, and which are passed through to the tenant on top of it?

Gross leases

In a gross lease, the tenant pays one rent figure and the landlord pays the building’s running costs out of it. It is simple to budget, which is why gross or “all-in” deals are common for small suites, executive offices and flex space. The landlord, though, is taking the risk that costs will rise, and the rent is priced with that risk in mind.

Pure gross leases are rarer than the term suggests. Many so-called gross leases are really modified gross or semi-gross: the landlord covers costs up to a base year, and the tenant pays its share of any increase above that. Others exclude in-suite utilities or after-hours heating and cooling. Ask for a list of everything the rent does not cover.

Net, double net and triple net

In a net lease, the tenant pays a base rent (often called net or minimum rent) plus a share of some or all of the building’s running costs, usually called additional rent. The number of “nets” traditionally signals how many of the three cost categories the tenant pays: a single net lease passes through property taxes; a double net adds insurance; a triple net, or NNN, adds operating and maintenance costs as well.

In practice, especially in Canada, you will often see leases simply described as “net” where the tenant pays its proportionate share of all three, which is functionally triple net. Some leases go further and are described as “absolutely net” or “carefree” to the landlord, meaning the tenant may also bear structural repairs or capital replacements. Those deserve close legal review.

“

The headline rent tells you what the landlord wants to be paid. Additional rent tells you what the building costs to run.

A worked example

Suppose you are comparing two illustrative 2,500-square-foot offices. Office A is quoted at $38 per square foot gross. Office B is quoted at $22 per square foot net, with additional rent estimated at $15 per square foot for the current year.

In year one, Office B is slightly cheaper. But if property taxes or operating costs rise 5 per cent a year, Office B’s additional rent climbs while Office A’s rent, if truly gross, stays put for the term or rises only by agreed steps. Over a five-year lease the gap can narrow or flip. That is why comparing options on total occupancy cost over the full term, not the first-year rate, matters.

The comparison also leaves out items that sit outside both kinds of rent. In-suite electricity, after-hours heating and cooling, your own contents insurance and your share of any year-end reconciliation can all add to the bill. Ask each landlord to put in writing which of those you would pay, and how they are measured or allocated, before you line the options up side by side.

What to check in a net lease

Additional rent is usually billed monthly based on the landlord’s budget estimate, then reconciled after year end against actual costs, which can mean a refund or an extra bill. Before signing, look at how the lease defines operating costs and what it excludes. Reasonable exclusions often include the landlord’s financing costs, leasing commissions, costs of correcting original construction defects, and costs recovered from insurance or other tenants. Capital repairs are a frequent point of negotiation; some leases exclude them, others allow them to be amortized and recovered over time.