Gross Lease vs. Net Lease

Gross and net leases sit at opposite ends of the same question: who pays a property’s operating expenses? Under a gross lease, the tenant pays one flat rent and the landlord covers taxes, insurance, and common-area costs out of it. Under a net lease, the tenant pays a lower base rent but reimburses some or all of those costs separately — single net (taxes), double net (taxes and insurance), or triple net (taxes, insurance, and CAM). A 5,000-square-foot office suite might lease gross at $25/sq ft ($125,000/year flat) or net at $19/sq ft base ($95,000) plus a separate $30,000 in reimbursed operating costs; the tenant’s total occupancy cost lands in roughly the same place either way, but the two structures allocate expense risk very differently.

The allocation matters more to a borrower than the headline rent does, because it drives how durable a property’s NOI is. A gross-leased building absorbs rising taxes, insurance, and utility costs directly into the landlord’s expense line — and therefore into NOI — while a net-leased building passes most of that inflation through to tenants, which is exactly why lenders tend to underwrite net-leased assets more generously. Office space skews gross or modified gross; retail and industrial skew net. When comparing two properties with similar in-place rent for a refinance, ask what expenses the lease actually makes the landlord responsible for — that answer moves the underwritten NOI more than the rent roll does.

Lease structure is one of the qualifiers we try to capture alongside property type in a lender’s observed lending terms, since “65% LTV on stabilized retail” means something different depending on whether the leases in place are gross or net.