Three lease structures dominate US commercial real estate, and the difference between them can be 30% of your effective rent. Pick the wrong mental model and you'll budget for one number while invoices hit you for another. Here's how to read each.
Triple Net (NNN)
The tenant pays base rent plusthree categories of building expenses: real-estate taxes, building insurance, and common-area maintenance (CAM). Hence the “triple”. Sometimes called “net-net-net” or just NNN.
What the tenant pays
- Base rent (the headline number)
- Pro-rata share of property taxes
- Pro-rata share of building insurance
- Pro-rata share of CAM (see our CAM post for what's included)
- Their own utilities and interior maintenance
NNN dominates retail (strip centers, anchor-tenant deals) and is common in suburban office. The tenant takes most expense risk; the landlord's rent number is predictable.
Modified Gross
The murky middle. The tenant pays base rent plus some operating expenses, but exactly which ones varies wildly by deal. Common structures:
- Base year — tenant pays expenses that exceed the building's total in the year the lease started. The base year is the most-litigated number in the lease.
- Expense stop — tenant pays expenses above a fixed dollar amount per sqft, regardless of actual base year.
- Negotiated pass-throughs — only specific items (taxes only, insurance only, etc.) get passed through.
Modified gross is the most common office structure in major US markets. The structure makes the headline rent more meaningful than NNN — tenants budget against a known floor — but the base year mechanics can still surprise.
Full Service Gross
The landlord pays everything: taxes, insurance, CAM, utilities, janitorial, sometimes even basic repairs. The tenant pays one number, often year-over-year escalated by 2-3%.
Full service is most common in Class-A urban office, government leases, and short-term sublets. The tenant trades higher headline rent for predictability — your accountant doesn't have to model OpEx scenarios.
A worked example: $30/sqft in three structures
Same 5,000 sqft suite, three structures, what a tenant actually pays in year one:
- NNN at $30/sqft + $14 OpEx = $44/sqft × 5,000 = $220,000/yr
- Modified Gross at $36/sqft + $4 base-year overage = $40/sqft × 5,000 = $200,000/yr
- Full Service at $42/sqft = $42/sqft × 5,000 = $210,000/yr
The landlord's economics are similar in all three — what differs is who carries the variability. Full service shifts that variability to the landlord at a small premium. NNN gives the tenant a lower headline number but exposes them to OpEx inflation.
Why “structure” is one of the most important fields in your abstract
Your asset-management system needs to know whether to apply OpEx formulas at all. A NNN lease and a Full Service lease at the same headline rent forecast wildly different cash flows. Most abstracts capture base rent perfectly and leave structure as a dropdown that someone forgot to fill in.
LeaseBrief surfaces lease structure as a top-level field in every abstract, with citation to the rent and OpEx clauses that establish it. Mis-classify the structure and the rest of the numbers fall apart.
Quick reference
- NNN — tenant pays everything; lowest headline rent, highest variance.
- Modified Gross — split. Watch the base year and the expense stop.
- Full Service — landlord pays everything; highest headline rent, lowest variance.
- Industrial Gross — variant of NNN where landlord retains roof/structure responsibility. Common in industrial.
- Bondable Net — a NNN variant with no termination rights for casualty. Used for credit-tenant deals.