Compare NNN, Gross, Modified Gross, and Double Net lease structures. Understand who pays what, how each structure affects your NOI, and what cap rate to underwrite for each lease type. Essential for CRE investors, agents, and lenders.
Why Lease Type Determines Value
The same building with the same rent can have a dramatically different value depending on the lease structure. A NNN lease transfers expense risk to the tenant, making income more predictable and justifying a lower cap rate (higher price). A gross lease keeps all expense risk with the landlord, requiring higher cap rates to compensate — or careful underwriting of expense growth.
NNN vs. Gross: The NOI Impact
With a gross lease at $10,000/month, if property taxes rise $500/month, your NOI drops $500/month. With a NNN lease at the same rent, the tenant absorbs that increase. Over a 5-year hold, the NOI difference compounds significantly — directly impacting your IRR and exit value.
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Lease Types Deep Dive: Gross, Net, NNN & Modified
Who pays taxes, insurance, and maintenance — landlord or tenant — is the single biggest driver of what a commercial rent number actually means. A $30/SF gross lease and a $30/SF triple-net lease are completely different deals. This tool sorts a lease into its true type and shows what the effective obligations are.
The Main Types
- Gross (Full-Service) Lease: tenant pays one rent number; landlord covers taxes, insurance, and operating expenses. Common in office. Simple for tenants, but the landlord carries expense inflation risk — often mitigated with expense stops or base-year clauses.
- Single Net (N): tenant pays rent + property taxes. Uncommon as a pure form.
- Double Net (NN): tenant pays rent + taxes + insurance; landlord keeps structural maintenance.
- Triple Net (NNN): tenant pays rent plus taxes, insurance, and maintenance. Standard for freestanding retail (pharmacies, QSR, dollar stores). The landlord's income approaches truly passive — which is why NNN deals with credit tenants trade at premium (lower) cap rates.
- Modified Gross: negotiated middle ground — typically tenant pays rent + utilities/janitorial, landlord covers structure, with expenses over a base year passed through. The details clause-by-clause matter more than the label.
Why It Changes Your Underwriting
The lease type determines how much of gross rent survives to NOI. $100,000 of NNN rent may be ~$95,000 of NOI; $100,000 of gross-lease rent could be $60,000–70,000 after landlord-paid expenses. Comparing properties without normalizing lease type is the most common apples-to-oranges error in small-balance CRE.
The Questions to Ask Any Lease
Who pays taxes? Insurance? Roof and structure? Parking lot? CAM — and is it capped? Is there a base year or expense stop? What are the escalations? Two leases with the same "type" label can allocate thousands of dollars differently on these answers.
Data sources for market context: Federal Reserve (FRED), U.S. Census ACS, HUD Fair Market Rents.