The main types of commercial leases are triple net (NNN), gross, modified gross, and full service gross, and the difference between them is who pays the building’s taxes, insurance, and maintenance. In Austin, retail and industrial space is commonly quoted NNN, while multi-tenant office space is often quoted full service. Knowing which structure you are looking at is the first step to comparing spaces fairly.
Why the lease type matters
Two spaces can advertise very different rents and still cost about the same per month. A NNN rate excludes operating expenses; a full service rate includes them. Comparing a hypothetical $25/SF NNN quote to a hypothetical $38/SF full service quote without adjusting is comparing two different things. For the math of turning a quote into a monthly payment, see how commercial rent works.
Triple net (NNN) lease
In a triple net lease, the tenant pays base rent plus its pro rata share of three categories of expense:
- Property taxes on the land and building.
- Property insurance the landlord carries on the building.
- Common area maintenance (CAM): landscaping, parking lot, lighting, common utilities, management, and similar costs.
The landlord typically estimates these costs for the year, the tenant pays the estimate monthly with rent, and the two sides settle up after year end. The tenant also pays its own suite utilities and usually maintains its own interior and systems.
NNN is attractive to landlords because rising expenses pass through to tenants. For tenants, the base rent is lower, but total cost is less predictable. We cover what goes into those charges, and how to limit them, in NNN and CAM charges explained.
Single net and double net
These are less common variations:
- Single net (N): the tenant pays base rent plus property taxes. The landlord covers insurance and maintenance.
- Double net (NN): the tenant pays base rent plus taxes and insurance. The landlord covers maintenance, often with the roof and structure explicitly on the landlord.
In practice, the labels are used loosely. Some listings say “NN” when the tenant pays nearly everything, so the lease language controls, not the label.
Gross lease
In a gross lease, the tenant pays one rent and the landlord pays the building’s taxes, insurance, and maintenance out of it. Budgeting is simple, and the landlord carries the risk of expense increases. Because of that, gross rents are higher than NNN rents for comparable space, and landlords often build in larger annual escalations.
Pure gross leases are most common in small or older buildings, some flex and small-bay industrial space, and short-term deals.
Modified gross lease
A modified gross lease sits between gross and NNN. The rent covers some operating expenses, and the tenant pays others directly. A typical version: the landlord pays taxes, insurance, and common area costs, while the tenant pays its own electricity and janitorial. Another version passes through increases in taxes over a base year.
There is no standard definition, so two “modified gross” leases can split costs very differently. Ask for a written list of exactly which expenses are included in rent and which are not.
Full service gross lease
A full service gross lease (also called full service or FSG) includes taxes, insurance, maintenance, building utilities, and usually janitorial in the rent. It is the common structure in multi-tenant office buildings, including much of downtown Austin and the major suburban office corridors.
Most full service leases use a base year or expense stop. The landlord pays operating expenses up to the level of the first lease year (the base year), and the tenant pays its share of any increase after that. So a full service lease is predictable, but not completely fixed over a long term.
Percentage lease
A percentage lease adds rent based on the tenant’s sales. The tenant pays base rent (often on a NNN basis) plus a percentage of gross sales above a “breakpoint.” This structure appears mostly in shopping centers and malls with strong traffic, where the landlord shares in a tenant’s success. Tenants should understand how gross sales are defined, what reporting is required, and whether the landlord can audit sales records.
Ground lease
In a ground lease, the tenant leases only the land and builds or owns the building on it. Terms are long, often decades, and the improvements typically revert to the landowner at the end. Ground leases are common for pad sites leased to restaurants, banks, and other freestanding users. They involve financing and construction questions that a standard space lease does not.
Absolute net and bondable leases
An absolute net lease (sometimes called a bondable lease) goes beyond NNN. The tenant pays essentially every cost, including roof and structural repairs, and often must keep paying rent even if the building is damaged or destroyed. These leases are mostly used for single-tenant buildings leased to national or strong credit tenants, because investors value the predictable income. A small business should be very cautious about taking on this level of risk.
Commercial lease types compared
| Lease type | Property taxes | Building insurance | Maintenance (CAM) | Suite utilities | Typical property types |
|---|---|---|---|---|---|
| Triple net (NNN) | Tenant (pro rata) | Tenant (pro rata) | Tenant (pro rata) | Tenant | Retail, industrial, many medical |
| Double net (NN) | Tenant | Tenant | Landlord | Tenant | Some retail and single-tenant |
| Single net (N) | Tenant | Landlord | Landlord | Tenant | Uncommon |
| Modified gross | Varies by lease | Varies by lease | Varies by lease | Often tenant | Smaller office, flex, some medical |
| Gross | Landlord | Landlord | Landlord | Varies | Small or older buildings, short terms |
| Full service gross | Landlord (increases over base year to tenant) | Landlord (same) | Landlord (same) | Landlord | Multi-tenant office |
| Absolute net | Tenant | Tenant | Tenant, including structure | Tenant | Single-tenant net lease |
“Tenant (pro rata)” means the tenant pays its share based on its square footage relative to the building or center.
What is common for each Austin property type
These are general patterns, not rules. The listing and the lease decide.
- Retail: commonly quoted NNN, from neighborhood strip centers to freestanding buildings. See retail.
- Industrial and warehouse: commonly quoted NNN, with the tenant often responsible for more of its own interior and systems. See industrial.
- Office: multi-tenant office is often quoted full service with a base year; smaller and single-tenant office buildings may be modified gross or NNN. See office.
- Medical office: varies. Medical space in retail centers is usually NNN; space in medical office buildings may be NNN or modified gross. See medical.
How to compare spaces with different lease types
- Convert every quote to an estimated all-in annual cost per square foot: base rent plus estimated operating expenses plus any utilities and janitorial you would pay directly.
- Ask each landlord for the current year’s operating expense estimate and the last few years of actuals.
- Check escalations, concessions, and the measurement of the space. Our lease cost calculator helps put options side by side.
- Review the clauses that shift costs, like expense caps and repair obligations. See commercial lease terms that matter.
Get help comparing lease structures
A tenant rep agent compares lease structures for you and negotiates the terms that control cost. Tristen Palori, a licensed commercial real estate agent, represents Austin tenants, and the fee is typically paid by the landlord. Learn about tenant representation, or contact us to talk through the spaces you are considering. Owners can see landlord representation.
FAQ
Frequently asked questions
What is a triple net lease?
A triple net (NNN) lease is one where the tenant pays base rent plus its share of the property's taxes, insurance, and common area maintenance. It is the most common structure for retail and industrial space in Austin.
What is the difference between a gross lease and a net lease?
In a gross lease, the landlord pays the building's operating expenses out of the rent. In a net lease, the tenant pays some or all of those expenses on top of base rent.
What is a modified gross lease?
A modified gross lease is a middle ground: rent covers some operating expenses, and the tenant pays others directly, often its own utilities and janitorial. The exact split is written into each lease, so read it line by line.
Is a NNN lease bad for tenants?
Not necessarily. NNN leases are standard for many property types, and the base rent is lower to reflect the extra costs. The risk is unexpected increases, which caps, exclusions, and audit rights help control.
What is a full service gross lease?
A full service gross lease bundles taxes, insurance, maintenance, utilities, and usually janitorial into one rent. It is common in multi-tenant office buildings, often with a base year so the tenant pays increases above that year.
What is an absolute net lease?
An absolute net (or bondable) lease puts nearly every cost and risk on the tenant, including structural repairs and rebuilding after a casualty. It is mostly used for single-tenant buildings leased to strong credit tenants.