Gross Lease

Gross Lease

Key takeaways
* A gross lease charges a tenant a single, fixed rent that covers occupancy plus most operating expenses (taxes, insurance, utilities).
* Common in commercial properties (offices, retail); simpler budgeting for tenants but often higher rent.
* Two main variants: modified gross lease and fully service (full-service) lease.
* Opposite of net leases, where tenants pay some or all operating expenses.

What is a gross lease?

A gross lease is a rental agreement in which the tenant pays a fixed rent and the landlord covers the property’s operating expenses. Those expenses typically include property taxes, insurance, utilities, and routine maintenance unless the lease explicitly excludes them. Gross leases are frequently used in multi-tenant commercial buildings.

How it works

• The lease specifies a flat periodic payment (monthly, quarterly, etc.).
• The landlord estimates operating costs and folds them into the rental rate.
• Tenants get predictable occupancy costs and minimal administrative responsibility.
• Terms are negotiable — a lease may include specific services (janitorial, landscaping) or carve out certain utilities or insurance for tenant responsibility. Always check the fine print.

Types of gross leases

1. Modified gross lease
2. Hybrid between a gross lease and a net lease.
3. Tenant pays base rent and a share of certain operating costs (e.g., electricity or a proportional share of taxes/insurance).
4. Common in office buildings with multiple tenants; details vary by lease.
5. Fully service (full-service) lease
6. Landlord pays all operating costs; tenant pays only rent.
7. Simplest for tenants but typically results in a higher rent to cover the landlord’s expenses.

Advantages and disadvantages

Advantages for tenants
* Predictable, simplified budgeting—rent covers most expenses.
* Less administrative burden (landlord handles bills and service contracts).
* Easier for small businesses that prefer fixed costs.

Disadvantages for tenants
* Higher base rent than in net leases.
* Limited control over operating expenses and maintenance decisions.
* Potential risk if landlord is slow to address repairs.

Advantages for landlords
* Ability to set higher effective rent by bundling costs.
* Control over service contracts and building operations.

Disadvantages for landlords
* Responsible for variable and unexpected operating costs.
* More administrative work to manage and pay expenses.
* Risk of underestimating costs, which reduces net income.

Gross leases vs. net leases

A net lease shifts some or all operating costs to the tenant. Common net lease types:
* Single net lease: tenant pays rent + property taxes.
* Double net lease: tenant pays rent + property taxes + insurance.
* Triple net lease (NNN): tenant pays rent + taxes + insurance + maintenance.

Net leases give tenants more control over certain costs but increase their financial and operational responsibilities. Gross leases trade that control for predictability and ease.

Quick FAQs

What’s the difference between a lease and rent?
* A lease is the contractual agreement defining terms and duration. Rent is the payment made under that agreement.

What are the main types of commercial leases?
* The primary categories are gross leases (including modified and full-service) and net leases (single, double, triple).

Which commercial lease is most common?
* Gross leases are common and often used where landlords prefer to manage building operations and tenants prefer predictable costs.

Practical advice

• Read the lease carefully and confirm which expenses are included or excluded.
• Negotiate responsibility for specific services and caps or pass-through mechanisms for variable costs.
• Consider your business’s appetite for variable expenses and operational control when choosing between gross and net lease structures.