Commercial Lease Types: An Operator’s Playbook (2026)

Every commercial real estate lease, no matter what a broker calls it, is a contract about one thing: how the building’s operating costs get split between the landlord and the tenant. Those costs are property taxes, insurance, maintenance (including common area maintenance, or CAM), and utilities. A gross lease keeps them with the landlord. A triple net lease pushes nearly all of them onto the tenant. Every other structure is a negotiation over where the line sits, plus one retail-specific overlay, the percentage lease, that ties rent to sales. The names matter less than the spectrum underneath them.

What “commercial lease types” means (and why nobody agrees on the count)

Commercial lease types are the standard ways a commercial lease divides operating expenses between the landlord and the tenant. No official list says how many there are.

That is why the count never agrees. LoopNet groups them into three. SquareFoot’s glossary counts eight. Neither is wrong, because there is no statutory number of commercial lease types. There are four families almost everyone recognizes, gross, modified gross, net, and percentage, and the net family alone splits into single, double, triple, and absolute. Count the families and the answer is four. Count every net variant separately and the answer is seven or eight. Count only the structures an operator actually signs in a normal year and the answer is usually three: full-service gross, modified gross, and triple net.

The reason the split matters so much is that operating costs do not hold still. Property taxes get reassessed after a sale. Insurance premiums have swung hard in recent years. Maintenance and CAM drift up with labor and materials. Whoever holds those line items in the lease holds the risk that they move, and that risk is worth real basis points at underwriting.

Commercial lease types at a glance

These are the conventional defaults; any lease negotiates the exact lines (that is what “modified” signals). Listed from landlord-pays-everything to tenant-pays-everything, by what the tenant takes on beyond base rent:

• Gross / full-service: nothing beyond rent; the landlord covers property taxes, insurance, maintenance and CAM, and usually utilities. Traditional and Class A office.
• Modified gross: a share of operating-expense increases above a base year, and often in-suite utilities; the landlord covers the rest. Multi-tenant office, mixed-use.
• Single net (N): property taxes. The landlord keeps insurance and maintenance. Uncommon.
• Double net (NN): property taxes and insurance. The landlord keeps structural and common-area maintenance. Some industrial, multi-tenant retail.
• Triple net (NNN): property taxes, insurance, and maintenance/CAM. The landlord keeps only structure and roof. Single-tenant retail, industrial big-box.
• Absolute net: everything, including roof, structure, and casualty; the landlord’s obligations drop to zero. Sale-leasebacks, ground leases, corporate-credit.
• Percentage: a percentage of the tenant’s sales above a breakpoint, layered on top of a gross or net base, so the expense split follows whichever base applies. Malls, anchored retail, restaurants.

The tenant’s share grows as you move down the list, and the landlord’s shrinks. Gross loads the operating risk onto the landlord; absolute net loads all of it onto the tenant; triple net is where most single-tenant deals settle. The percentage lease is the odd one out, because it is not really a point on this spectrum at all.

Gross and full-service leases

In a gross lease, the tenant pays one flat rent and the landlord covers everything else: property taxes, insurance, maintenance, CAM, and usually utilities. The tenant gets a single predictable number; the landlord keeps the upside if operating costs fall and eats the downside if they rise. In standard property law, a gross lease is the structure where the tenant pays a flat sum and the landlord carries the property’s expenses (Cornell LII).

The structure is common in traditional and Class A office, where a single landlord runs shared building systems that cannot be cleanly carved up tenant by tenant. “Full-service gross” is the office flavor of the same idea: the quoted rent bundles in building services like janitorial, utilities, and security, so the tenant writes one check and the landlord runs the building.

For the landlord, the cost of that simplicity is the operating-expense load it carries directly. Thesis Driven founder Brad Hargreaves, teaching how to read a building’s operating expenses, puts the typical range at 25% to 40% of revenue for the main asset classes: “Anywhere from 25% on the low end to 40% on the highest end for traditional asset classes like office and multifamily.” In a gross lease, that entire load sits on the landlord’s side of the ledger, which is exactly why gross rents are quoted higher than net rents for the same space. The tenant is paying for the landlord to absorb the operating risk.

Modified gross leases

Modified gross is the middle of the spectrum, and the most misunderstood category in commercial real estate, because “modified” can mean almost anything. It is any structure that starts from gross and pushes some, but not all, of the operating costs onto the tenant.

The most common pattern is the base-year stop. The tenant pays base rent plus its share of operating-expense increases above a stipulated base year, while the landlord absorbs everything at or below that base. The first year, by definition, carries no reimbursements, because there is no increase over the base yet. That is the structural divide in how the two halves of the market get modeled: full-service gross and modified gross are base-year structures, while reimbursements, and free rent on those reimbursements, belong to the net lease side.

Modified gross is common across multi-tenant office and mixed-use, where neither full landlord absorption nor a clean tenant pass-through fits. A typical split has the tenant covering in-suite utilities and janitorial while the landlord keeps property taxes, insurance, and structure. The exact lines move deal by deal, which is the whole point: modified gross is less a defined structure than a label for the territory between gross and net.

Net leases: single, double, triple, and absolute

The net lease family stacks operating costs onto the tenant one “net” at a time. A net lease, broadly, is one in which the tenant pays rent plus some portion of the property’s operating expenses (Cornell LII). How many of those expenses move over is what separates the variants.

Single net (N). Base rent plus property taxes; the landlord keeps insurance and maintenance. It is uncommon in practice, more a step on the ladder than a structure operators meet often.

Double net (NN). Base rent plus property taxes and insurance; the landlord keeps structural and common-area maintenance, while the tenant often still handles interior upkeep. It shows up in some industrial deals and multi-tenant retail.

Triple net (NNN). Base rent plus all three nets, property taxes, insurance, and maintenance/CAM (Cornell LII’s definition), with the landlord keeping only structure and roof. The NNN lease is the dominant structure for single-tenant retail (Dollar General, AutoZone, O’Reilly Auto Parts) and industrial big-box, and the entire publicly traded net lease REIT category is built on it. Because the tenant carries the operating costs, the landlord’s modeled NOI flows almost straight from the rent roll. The tradeoff is that the cap rate then tracks the tenant’s credit rather than the building.

NNN carries enough on its own, cap rates driven by tenant credit, the net lease REITs, sale-leasebacks, and 1031 exchanges, to need a guide of its own. Read the full treatment: Triple Net Lease (NNN): An Operator’s Playbook.

Absolute net (bond-style). The end of the spectrum. The tenant takes everything, including roof, structure, casualty, and even condemnation. The landlord’s obligations effectively drop to zero. Absolute net is the structure behind most sale-leasebacks, ground leases, and corporate-credit deals, where the lease is meant to behave like a bond backed by the operating company. A ground lease sits here rather than under standard NNN: the tenant builds and owns the improvements, so the landowner has no building left to maintain.

Percentage leases

A percentage lease is the retail exception. The tenant pays a base rent plus a percentage of its gross sales above a set breakpoint, so the landlord earns more when the store does well. The breakpoint is often “natural,” calculated as the base rent divided by the percentage, so the overage rent kicks in only once sales clear the rent the landlord was already getting.

The structure is standard in malls, anchored shopping centers, and other multi-tenant retail where the landlord wants a share of a strong tenant’s upside in exchange for a lower fixed base. The tenants who sign it most are retailers and restaurants. Crucially, the percentage piece is an overlay, not a replacement for the expense split. The base underneath can be gross or net, which is why the percentage lease sits across the bottom of the comparison table rather than inside the spectrum. In a percentage deal, the landlord stops being purely a landlord and becomes a minority partner in the tenant’s revenue.

How lease type changes the underwriting

For an operator, the lease type is not a legal detail to hand to counsel. It is the first input to the pro forma, because it decides three numbers before any others get calculated.

It sets the operating-expense load. In a gross or full-service lease, the landlord carries the full 25% to 40% operating-expense load that office and multifamily typically run. In a triple net deal, those same costs pass through to the tenant, so the landlord’s modeled operating expenses approach zero and NOI flows almost directly from rent. In a triple net retail deal, the pass-through is so clean that the operator’s pro forma barely models operating expenses at all.

It defines what the rent quote means. Take a space quoted at $30 a foot. At $30 gross, $30 is close to the tenant’s full year-one occupancy cost. At $30 triple net, the tenant also pays property taxes, insurance, and CAM on top, often several more dollars per foot, so the real cost is higher and the comparison to the gross quote is apples to oranges. Reimbursements only exist in net leases; a base-year gross or modified gross deal has none in year one. An operator who underwrites a net rent as if it were gross, or compares two quotes without normalizing the structure, is underwriting a building that does not exist.

It decides who absorbs cost inflation. When a property gets reassessed after a sale, or insurance reprices, the gross landlord absorbs the increase and the net tenant pays it. Property taxes and insurance have been two of the most volatile lines in commercial real estate, and a lease assigns that volatility to one side or the other before a single reassessment lands. On a thin-margin deal, that allocation can be the difference between holding NOI and quietly losing it.

The lease type is the lens every other number passes through. Choose the wrong one at the start, and the rent roll, the OpEx ratio, and the NOI are all describing a building that is not the one on offer.

Keep building your underwriting stack

→ Workshops on underwriting, capital raising, and asset-class deep dives: Thesis Driven Workshops
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Related reading:

• What’s Driving the Surge in Retail Leasing Demand?, Brin Snelling
• Big Data Comes for Net Lease Real Estate, Ari Segal, on how machine learning is rewriting net lease underwriting
• Understanding Cap Rates, Simon Jawitz, the metric every lease structure ultimately prices into

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