The four main types of commercial leases are the gross lease, the net lease, the percentage lease, and the ground lease. Each one divides operating costs, risk, and control between landlord and tenant differently, and the type you sign shapes far more than your monthly payment. It determines who pays when the roof leaks, how your rent changes over time, and what happens if your business does better than expected.
Gross Lease
A gross lease bundles most or all operating expenses into a single flat rent. The landlord collects that amount and covers property taxes, building insurance, common area upkeep, and often utilities from the proceeds. You write one check each month and the landlord handles the rest. That predictability is why gross leases dominate residential rentals and appear often in multi-tenant office buildings, where splitting variable costs among dozens of tenants would be a logistical headache.
The trade-off is price. Landlords aren’t absorbing those costs out of generosity. They estimate expenses for the lease term and build them into the rent, usually with a cushion. If actual costs come in lower, the landlord keeps the difference. If costs spike, the landlord absorbs the loss until the next rent adjustment. That built-in markup means gross lease tenants almost always pay more per square foot than they would under a net lease for comparable space.
Modified Gross Leases
Most gross leases in practice aren’t pure full-service arrangements. The modified gross lease splits the difference. The tenant pays a base rent that covers operating expenses at current levels, but any increases in taxes, insurance, or maintenance above a base year get passed through proportionally. If property taxes jump 8% in year three, you absorb your share of that increase on top of your base rent. Utilities are almost always the tenant’s responsibility under a modified gross structure. This is the default in many professional office buildings and medical complexes. If someone offers you a “gross lease” for commercial space, read the fine print to see whether it’s truly full-service or actually modified gross.
Rent Escalation in Gross Leases
Even a full-service gross lease rarely locks in the same rent for the whole term. Landlords protect themselves against inflation through escalation clauses. A fixed-percentage escalation bumps rent by a set amount each year, commonly 2% to 4%. A step-up schedule increases rent by a specific dollar amount per square foot at defined intervals. A CPI-based escalation ties increases to the Consumer Price Index, which tracks inflation but can produce unpredictable swings. Some landlords combine approaches with a “greater of” clause that applies whichever produces the higher increase, CPI or a fixed floor. Tenants negotiating a CPI escalation should push for a cap to limit exposure in volatile years.
Net Lease
A net lease starts with a lower base rent than a gross lease, then layers specific operating expenses on top. The more expenses shifted to the tenant, the “more net” the lease becomes. This structure dominates commercial real estate for single-tenant properties. It gives tenants more visibility into what they’re paying for, and more financial risk.
Single Net Lease
In a single net lease, you pay base rent plus property taxes. The landlord still handles insurance and maintenance. This is the lightest version and relatively uncommon as a standalone structure, though it shows up in some multi-tenant retail and office arrangements.
Double Net Lease
A double net lease adds building insurance to the tenant’s tab alongside property taxes. The landlord keeps responsibility for structural maintenance and common area upkeep. Double net leases are more common than single net arrangements and appear frequently in multi-tenant commercial properties where the landlord wants to control building maintenance but offload the more predictable costs of taxes and insurance.
Triple Net Lease
The triple net lease matters most in practice because it dominates single-tenant commercial real estate. You pay base rent plus property taxes, insurance, and all maintenance and repair costs. That “all” is doing heavy lifting. In most triple net agreements the tenant is responsible for everything from routine landscaping to roof replacement and HVAC overhauls. Some leases carve out structural repairs as the landlord’s responsibility, but many don’t, so the maintenance provisions deserve careful reading.
The base rent on a triple net lease is significantly lower than a gross lease for similar space, which makes the numbers look attractive at first glance. But your actual occupancy cost depends entirely on the building’s condition and the local tax trajectory. A five-year-old building with a new roof is a very different financial proposition from a thirty-year-old building where major systems are near end of life. Tenants who skip the building inspection before signing a triple net lease learn this the expensive way.
Percentage Lease
A percentage lease charges base rent plus a percentage of the tenant’s gross sales above a specified threshold. This structure is almost exclusively a retail arrangement, found in shopping centers, malls, and mixed-use developments where foot traffic drives revenue. The landlord has a direct financial stake in your performance, which in theory means they’re motivated to keep the property well-maintained and well-marketed.
How the Breakpoint Works
The sales threshold that triggers percentage rent is called the breakpoint, and it’s the most important number in any percentage lease negotiation. The natural breakpoint equals your annual base rent divided by the agreed percentage rate. If your base rent is $60,000 per year and the percentage rate is 6%, your natural breakpoint is $1,000,000 in annual gross sales. You owe no percentage rent until sales exceed that figure. Once you cross the breakpoint, you pay the percentage rate on every dollar above it.
Some landlords negotiate an artificial breakpoint set lower than the natural calculation, so percentage rent kicks in sooner. Others set it higher as a concession to attract desirable anchor tenants. The percentage rate itself varies by retail category. Retail stores commonly pay 5% to 10%, with 6% being a standard benchmark. Restaurants and high-margin businesses tend toward the upper end. High-volume, low-margin operations like supermarkets and discount stores negotiate lower rates to account for thinner margins.
Sales Reporting and Audit Rights
Because the landlord’s income depends on accurate sales figures, percentage leases typically require the tenant to submit regular sales reports and keep detailed records. Most agreements also give the landlord the right to audit the tenant’s books. If an audit reveals underreported sales, the tenant owes back rent plus, in many leases, the cost of the audit itself. This reporting burden is one reason percentage leases work best for established retailers with solid accounting systems rather than early-stage businesses still building out their back office.
Ground Lease
A ground lease is fundamentally different from the other three. You lease raw land only, and you build on it at your own expense. The buildings and improvements you construct belong to you during the lease term, but when the lease expires, everything typically reverts to the landowner. That reversion is the defining feature and the source of most of the complexity.
Lease Terms and Reversion
Ground leases run far longer than standard commercial leases, typically 50 to 99 years, to give the tenant enough time to recoup construction costs. The length reflects economic reality. No developer would spend millions building on land they’ll lose in ten years. Even with those horizons, the approaching end of a ground lease creates real financial pressure, and experts recommend starting renegotiation or exit planning no later than 20 to 30 years before expiration, because the value of improvements declines as the remaining term shrinks.
The reversion clause dictates what happens to tenant-built structures at lease end. Some leases state plainly that all improvements revert to the landowner at no cost. Others allow the tenant to remove structures, require the landowner to buy them at fair market value, or give the tenant a right of first refusal to purchase the land. A few require the tenant to demolish improvements and restore the land to its original condition. These terms are negotiated at signing and extremely difficult to change later, so the reversion clause deserves as much attention as the rent.
Financing a Ground Lease
Building on leased land means you need a leasehold mortgage rather than a standard property loan, and lenders scrutinize ground leases carefully before approving financing. The lease must have enough remaining term to extend well beyond the mortgage maturity date, typically at least 20 to 30 years past the final payment. Lenders also want notice and cure rights if the tenant defaults on ground rent, so the lease isn’t terminated out from under the collateral.
Whether the ground lease is subordinated or unsubordinated makes a significant difference. In a subordinated ground lease, the landowner pledges their fee interest as additional collateral for the tenant’s mortgage. That gives the lender a stronger security position but puts the landowner’s land at risk if the tenant defaults. In an unsubordinated ground lease, the landowner’s fee interest stays senior to the mortgage, so a lender foreclosure can only transfer the leasehold, not the land itself. Unsubordinated leases are harder to finance and some loan programs won’t accept them at all, but they’re more common because most landowners won’t subordinate their property.
How the Four Types Compare
p>The right lease type depends on what you’re trying to do with the space and how much financial uncertainty you can absorb. Here’s how they stack up on the dimensions that matter most.
- Cost predictability. Gross leases offer the most predictable monthly costs. Net leases expose you to variable expenses. Percentage leases tie costs to your own revenue, which you at least have some control over. Ground leases carry the most financial complexity because you’re funding construction on top of rent.
- Total occupancy cost. Gross lease tenants pay the highest base rent because expenses are embedded. Triple net tenants pay the lowest base rent but may end up paying more overall if the building has expensive maintenance needs. Percentage lease tenants can pay less than either in slow months but significantly more when business is strong.
- Control over the space. Triple net and ground lease tenants have the most freedom to modify, maintain, and operate the property as they see fit. Gross lease tenants have the least, since the landlord manages the building and passes those costs through in rent. Percentage lease tenants fall somewhere in between, often subject to operating covenants that require them to stay open during mall hours and maintain certain standards.
- Risk allocation. Gross leases concentrate financial risk on the landlord. Triple net leases push nearly all operating risk onto the tenant. Percentage leases share revenue risk. Ground leases put construction and improvement risk squarely on the tenant, with the added long-term risk of losing those improvements at lease end.
Which Lease Type Fits Which Tenant
For a startup renting its first office, a gross lease provides simplicity when you need it most. For a national retailer with predictable margins, a triple net lease on a newer building offers lower costs and full control. For a mall tenant whose foot traffic depends on the landlord’s marketing, a percentage lease aligns incentives. For a developer who needs a prime location without tying up capital in land acquisition, a ground lease makes the project possible.
Clauses Worth Checking in Any Lease Type
The four categories describe how rent and expenses are structured. They don’t cover several provisions that can matter as much as the rent number itself, and these appear across all four types.
Assignment and Subletting
If your business needs change, you may want to transfer the lease or sublet part of your space. An assignment transfers your entire remaining interest to a new tenant, who then deals directly with the landlord. A sublease lets you rent out all or part of the space to a subtenant while you remain on the hook for the original lease. If a lease says nothing about transfers, the tenant is generally free to assign or sublet. In practice, virtually every commercial lease restricts this right, usually requiring the landlord’s prior written consent. The key negotiating point is whether that consent can be withheld for any reason or only for reasonable objections like the proposed tenant’s creditworthiness.
Holdover Provisions
Staying past your lease expiration without a renewal makes you a holdover tenant. If the landlord continues accepting rent, the tenancy typically converts to a month-to-month arrangement under the original lease terms. If the landlord refuses rent, you’re considered a trespasser and face eviction proceedings. Many commercial leases include holdover penalties of 150% to 200% of the previous rent to discourage tenants from lingering while they search for new space.
Constructive Eviction
When a landlord’s actions or neglect make a property substantially unusable, the tenant may have grounds to leave and stop paying rent under the doctrine of constructive eviction. Severe problems like persistent flooding, failure to provide heat, or major pest infestations can qualify if the tenant notifies the landlord, the landlord fails to fix the problem, and the tenant vacates within a reasonable time afterward.1Legal Information Institute (LII). Constructive Eviction A tenant who successfully raises constructive eviction is relieved of the obligation to pay rent for the affected period.
Default and Rent Acceleration
Every lease should spell out what constitutes a default and what remedies the landlord has. The most dangerous provision to overlook is a rent acceleration clause, which allows the landlord to demand the full remaining rent for the entire lease term immediately upon default. If you have four years left at $5,000 per month, that’s $240,000 due at once. Most jurisdictions require the landlord to make reasonable efforts to re-lease the space and offset the accelerated amount by any new rent collected, but that obligation varies and isn’t automatic everywhere. Before signing any commercial lease, identify the default triggers, the cure period you’ll have to fix a breach, and whether the landlord’s remedies include acceleration.