Question of the day
2026-10-03
Real Estate & REITs
Explain the main commercial lease structures - gross, modified gross, and triple-net - and who bears the operating expenses under each.
Answer it out loud first — like you would in the room. Then check yourself:
Reveal the model answer
Model answer
The structures differ in who pays property operating expenses (taxes, insurance, maintenance/CAM)
- GROSS (full-service) lease - the landlord pays all operating expenses out of a single all-in rent, so the landlord bears expense inflation risk; common in office, often with an expense-stop or base-year mechanism passing increases above a set level to tenants
- MODIFIED GROSS - expenses are split by negotiation, e.g. tenant pays utilities and janitorial while landlord covers taxes and insurance
- TRIPLE-NET (NNN) - the tenant pays the three nets (taxes, insurance, maintenance) on top of base rent, so the landlord collects rent with minimal expense leakage or inflation risk. The netter the lease, the lower and more bond-like the landlord's risk - which is why identical headline rents under different structures are NOT comparable.
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