When it comes to commercial leases, there are various types and terms that can be confusing for both lessors and lessees. Among these terms are “triple net leases,” “pass-through leases,” and “bondable leases,” which may vary in naming conventions depending on the region. Understanding the different types of commercial leases is essential for both parties involved. Let’s take a look into the meaning of triple net leases and explore various types of commercial leases to shed light on their characteristics and implications.
Gross Lease
A gross lease is similar to renting an apartment for personal use. In this type of lease, the lessor includes all expenses, such as snow removal, lawn maintenance, and hallway lighting, in the rent payment. This is the simplest form of a commercial lease, but it is relatively uncommon in the commercial real estate market.
Example of a Gross Lease
A small business renting a shared coworking space. A company may favor a gross lease to simplify expenses, as the landlord assumes responsibility for all operating costs, such as utilities, maintenance, and property taxes.
Modified Gross Lease
A modified gross lease is often seen in office buildings, combining elements of both gross and net leases. Under this type of lease, operating expenses, property taxes, and insurance are typically included in the initial base year rent. However, any increases in these expenses over the base year are charged to the tenant based on their pro-rata share. The exact terms may vary, specifying either the actual expenses or an increase over a base amount.
Example of a Modified Gross Lease
A professional services firm leasing office space in a mid-rise building. The landlord includes all operating costs in the first year’s base rent. In year two, when property taxes increase, the tenant is billed for their pro-rata share of that increase but the baseline costs remain the landlord’s responsibility.
Triple Net Lease (NNN lease)
Triple net leases (NNN leases) are frequently seen in retail leases. In this type of lease, the lessee assumes responsibility for additional expenses beyond the base rent. These expenses typically include common area maintenance (CAM), property taxes, and property insurance. The lessee pays the base rent “net” of these three expense categories. Hence, it is called a triple net lease.
Example of a Triple Net Lease
A national retail chain might opt for a triple net lease to gain control over property taxes, insurance, and maintenance expenses to ensure transparency and flexibility across their portfolio.
Absolute Net Lease
An Absolute Net Lease, also known as a bondable lease, is the most tenant-intensive lease structure. The tenant assumes full financial responsibility for all property-related expenses—including taxes, insurance, maintenance, and even structural repairs or replacement. These leases are typically non-cancelable and remain in force even if the building is destroyed. This structure is commonly used in long-term, single-tenant agreements with investment-grade tenants.
Example of an Absolute Net Lease
A national retailer like Walgreens may lease a freestanding pharmacy building on a 20–25 year absolute net lease. Walgreens would pay the rent, cover all property-related expenses, and be responsible for any roof or foundation repairs without landlord involvement.
Percentage Lease
A Percentage Lease combines a base rent with a percentage of the tenant’s gross sales, aligning landlord income with tenant performance. This lease type is common in retail settings where revenue can fluctuate based on seasonality or location traffic. The lease agreement typically sets a breakpoint—a sales threshold above which the tenant begins paying the percentage. Expense responsibilities (like taxes or maintenance) vary and are often negotiated separately.
Example of a Percentage Lease
A clothing retailer leasing space in a regional shopping mall might pay $3,000 per month in base rent plus 5% of monthly gross sales over $60,000. If the store earns $80,000 in a given month, they would owe an additional $1,000 in percentage rent (5% of $20,000).
Key Features of Common Lease Structures
| Commercial Lease Type | Definition | Utilities | Property Taxes | Insurance | CAM / Maintenance | Typical Use Case |
| Gross Lease | Tenant pays one flat rent; landlord covers all expenses. | Landlord | Landlord | Landlord | Landlord | Office buildings, multi-tenant spaces |
| Modified Gross Lease | Landlord and tenant split some expenses; varies by lease. | Tenant | Shared | Shared | Shared | Professional offices, medical buildings |
| Triple Net (NNN) Lease | Tenant pays base rent plus all major operating expenses. | Tenant | Tenant | Tenant | Tenant | Freestanding retail, industrial properties |
| Percentage Lease | Tenant pays base rent plus a % of gross sales; expenses vary. | Tenant | Varies | Varies | Varies | Retail stores, shopping centers |
| Absolute Net (Bondable) Lease | Tenant assumes all property expenses, including structural repairs; no landlord obligations. | Tenant | Tenant | Tenant | Tenant (incl. structural) | Single-tenant, long-term retail (e.g., CVS, Walgreens) |
For a deeper look at how these structures compare, see Comparing Commercial Lease Types: NNN vs. Gross, Modified Gross, and More.
What are Pass-Through Expenses in Commercial Leases?
Pass-through expenses refer to operating costs that a tenant pays in addition to base rent. These can include property taxes, insurance, maintenance, snow removal, and landscaping. Rather than being bundled into rent, these expenses are “passed through” from the landlord to the tenant—either directly or through reimbursement.
Pass-through clauses are common in lease types like triple net (NNN), modified gross, and even percentage leases. For example, in a triple net lease, tenants typically cover all pass-through costs. In contrast, a modified gross lease might allocate only certain expenses to the tenant.
What’s Next
Understanding the different types of commercial leases is important for businesses and landlords. Whether you’re negotiating a triple net lease, gross lease, or pass-through lease, the right knowledge and tools can significantly impact your financial outcomes.
To take your lease management to the next level, consider a real estate lease accounting software like Visual Lease. Our lease accounting software is designed to simplify complex lease terms, automate calculations, and ensure compliance with accounting standards like ASC 842 and IFRS 16. With tools for tracking lease types, generating reports, and managing critical dates, Visual Lease empowers businesses to make smarter decisions and maximize the value of their lease agreements. Want to see how it works? Request a demo today.
