Types of Commercial Leases
Unlike residential leases where the landlord pays almost all operating expenses, commercial lease structures dictate which expenses are passed through to the tenant. This directly determines the predictability of the landlord's Net Operating Income (NOI).
1. Triple Net (NNN) Lease
In a Triple Net lease, the tenant is responsible for virtually all property operating expenses on top of their base rent. The three 'Nets' are:
- **N1**: Property Taxes
- **N2**: Building Insurance
- **N3**: Common Area Maintenance (CAM) & Repairs
NNN leases are highly favored by passive investors because the landlord has minimal expense fluctuation, creating a highly stable and predictable [Cap Rate](/tools/coc-yield/cap-rate-vs-coc-yield).
2. Gross Lease (Full Service)
The tenant pays a single, flat monthly rent. The landlord is responsible for paying all taxes, insurance, utilities, and maintenance out of that rent.
While Gross leases are simpler for tenants to budget, they carry massive risk for landlords. If property taxes spike or a harsh winter triples the heating bill, the landlord's NOI decreases directly.
3. Modified Gross (Double Net / NN)
A hybrid approach where the tenant and landlord share operating expenses. Often, the tenant pays Base Rent plus utilities and interior maintenance, while the landlord covers roof repairs, structural issues, and property taxes.