A lease structure where the tenant pays a single flat monthly rent, and the landlord covers all property operating expenses out of that amount. Also called a "full service" lease in office markets.
Gross leases give tenants maximum cost predictability because a single flat monthly rent covers base rent plus all building operating expenses — property taxes, insurance, common area maintenance (CAM), utilities, and janitorial services. Gross leases dominate Class A and Class B multi-tenant office buildings and shorter-term commercial deals where tenants cannot budget for variable operating cost exposure.
Because operating expenses rise over time — property taxes in New York City or Los Angeles can increase 5–10% annually — most gross leases include a base year provision. The landlord establishes the first year of occupancy (or a negotiated prior year) as the baseline. In years 2 through lease expiration, the landlord passes through any operating expense increases above that base year amount. A tenant in a 10,000 RSF space with a $12/RSF expense base and actual Year 3 expenses of $14/RSF would owe $20,000 in additional pass-throughs that year. Tenants should negotiate the base year to a period of full occupancy so the base reflects realistic costs, not artificially low vacancy-year figures.
Under ASC 842 (FASB) and IFRS 16 (IASB), gross leases are classified as operating leases or finance leases based on the lease term relative to the asset's economic life and whether the present value of lease payments exceeds 90% of the asset's fair value. Most commercial office gross leases qualify as operating leases, requiring the tenant to record a right-of-use (ROU) asset and corresponding lease liability on the balance sheet. Landlords converting from gross to modified gross structures can model the expense split with CapVeri.com.
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A gross lease bundles base rent and all or most operating expenses — including property taxes, building insurance, common area maintenance, and utilities — into a single monthly payment. The landlord pays these costs directly and absorbs any increases, giving the tenant predictable occupancy costs. Some gross leases include a base year or expense stop provision that passes through cost increases above a defined threshold.
The primary advantage of a gross lease is cost predictability — tenants know their exact monthly obligation without worrying about fluctuating operating expenses. The main disadvantage is that gross lease rents are typically $5 to $15 per RSF higher than NNN rents because the landlord prices in expected operating costs plus a risk premium. Tenants also lose visibility into actual building expenses, making it harder to identify whether the landlord is managing costs efficiently.
In a full gross lease, the landlord pays all operating expenses from the base rent. A modified gross lease splits expenses: the landlord covers costs up to a base year or expense stop, and the tenant pays increases above that threshold. A NNN lease passes all taxes, insurance, and maintenance to the tenant separately. Modified gross leases are the most common structure in multi-tenant office buildings, offering a middle ground between full gross and NNN structures.
The five main types of commercial leases — NNN, gross, modified gross, percentage, and ground — have very different cost structures and risk profiles. Here's how each works.
A triple net lease (NNN) requires tenants to pay base rent plus property taxes, insurance, and maintenance. Learn how NNN leases work, what's included, and how they compare to gross leases.
NNN and gross leases shift expense risk differently. Learn how each structure affects your total occupancy cost and what to watch for in the abstract.
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