A triple net (NNN) lease shifts three operating cost categories from landlord to tenant: property tax, building insurance, and structural maintenance. A full-service gross lease bundles all operating costs into base rent. A modified gross lease splits operating costs by category, typically with the tenant paying utilities and janitorial directly while the landlord covers tax, insurance, and structure.
TL;DR
Five lease structures dominate US commercial real estate: full-service gross (FSG), modified gross (MG), triple net (NNN), absolute net (NN+ or “bondable”), and percentage rent (used in retail/restaurant on top of one of the above). Choose by tenant size, ops capacity, and lease term. Under 5,000 SF and under 5 years: pick FSG or MG for simpler accounting. Above that or in a multi-tenant building: NNN is the market standard, with negotiated caps. Single-tenant freestanding: absolute net is the structural default.
Full-service gross (FSG)
The simplest structure. Tenant pays one rent number; landlord absorbs all operating costs.
Tenant pays: base rent only.
Landlord pays: property tax, building insurance, structural maintenance, CAM, utilities (sometimes; check the specific lease), janitorial.
Pros: predictability. The tenant has zero exposure to operating expense escalations.
Cons: highest headline base rent because operating costs are loaded into rent. Landlord retains all upside on operating expense efficiency; if the building runs cheaply, the savings stay with landlord.
Best for: small tenants under 5,000 SF without ops bandwidth to manage NNN reconciliations. Government tenants. First-time leasees who can’t model NNN risk.
Modified gross (MG)
A middle ground. Some operating costs in base rent, some passed through.
Tenant pays: base rent + utilities + sometimes janitorial.
Landlord pays: property tax, building insurance, structural, CAM (often).
Pros: balanced cost-sharing. Tenant has some pass-through exposure but only on the categories they directly affect (utilities).
Cons: structure varies wildly by market and building. “Modified gross” in Manhattan is different from “modified gross” in Dallas. Read the specific lease.
Best for: 2,500 to 25,000 SF tenants, 3 to 7 year terms, multi-tenant buildings. The most common structure for office leases in many markets.
Triple net (NNN)
The market standard for multi-tenant office, retail, and industrial. Tenant pays operating costs as pass-throughs.
Tenant pays: base rent + property tax pass-through + insurance pass-through + structural pass-through + CAM (typically) + utilities + janitorial.
Landlord pays: capital improvements (with negotiation), reserves for future capex (with negotiation).
Pros: lower headline base rent. Tenant captures the upside on operating expense efficiency through audit rights.
Cons: variable cost. Without negotiated caps, year-5 NNN can be 20%+ above year-1. Requires ops bandwidth to manage reconciliations annually.
Best for: 5,000+ SF tenants, 5+ year terms, sophisticated tenants with lease management infrastructure.
For depth: NNN lease calculator.
Absolute net (NN+ or “bondable”)
The most landlord-friendly structure. Tenant pays everything.
Tenant pays: base rent + every operating cost + capital improvements + reserves + everything.
Landlord pays: nothing. Landlord is effectively a financial owner with no operational role.
Pros: lowest possible base rent.
Cons: tenant takes 100% of all building risk. A roof replacement or major HVAC failure is the tenant’s bill.
Best for: single-tenant freestanding buildings (Walgreens, McDonald’s, bank branches, fast-food). The tenant is effectively the building operator. Not appropriate for multi-tenant buildings.
Percentage rent
A retail/restaurant overlay on top of one of the above structures. Tenant pays base rent plus a percentage of gross sales over a breakpoint.
Standard structure: base rent at 6 to 8% of projected gross sales, with overage of 5 to 7% of sales above breakpoint.
Natural breakpoint: annual base rent / percentage rate. $84,000 base at 6% = $1.4M sales breakpoint. You only pay percentage rent on sales above $1.4M.
Best for: retail and restaurant tenants in shopping centers and high-traffic retail nodes. Aligns rent to actual sales performance.
For depth: Retail space lease cost per square foot and Restaurant lease cost per square foot.
Cost math: same building, different structures
Imagine a 5,000 SF Class A office in a Tier 1 metro. Same physical space, three structures:
| Line item | Full-service gross | Modified gross | NNN |
|---|---|---|---|
| Base rent ($/SF/yr) | $58 | $48 | $40 |
| NNN pass-through ($/SF/yr) | $0 | $0 | $11 |
| CAM ($/SF/yr) | $0 | $5 | $7 |
| Utilities ($/SF/yr) | $0 | $4 | $4 |
| All-in ($/SF/yr) | $58 | $57 | $62 |
In this example, NNN looks more expensive on year 1 because of conservative NNN/CAM benchmarks. In year 5 with 5% NNN escalation but 3% base-rent escalation, the gap widens further. Lesson: the headline rent comparison across structures is misleading. Always compute the all-in number.
How structure affects negotiation power
Different structures expose different levers:
- FSG: limited operating-expense levers (landlord absorbs). Push on base rent, free rent, TI, and term.
- MG: moderate operating-expense levers. Push on base rent, free rent, TI, escalation cap on the gross portion.
- NNN: strong operating-expense levers. Push on caps, audit rights, capital exclusions, base year reset, in addition to base rent and concessions.
For tactic guidance: How to negotiate a commercial lease.
When to convert from one structure to another
Mid-term conversions are uncommon but possible:
- NNN to MG: rare. Landlords prefer NNN because operating-cost risk shifts to tenant. Possible in soft markets as a concession.
- MG to NNN: somewhat common at renewal. Landlord increases base rent equivalent and breaks out operating expense pass-throughs.
- FSG to MG: common at renewal. Landlord retains base building costs but pushes utilities and janitorial to tenant.
The conversion economics depend on the operating-expense baseline. Always model the all-in TCO before agreeing to a structure conversion.
Frequently asked questions
What’s the difference between NNN and gross lease?
NNN shifts three operating-cost categories (property tax, insurance, structural maintenance) from landlord to tenant as pass-throughs. Gross lease bundles all operating costs into base rent. NNN has lower headline rent but variable cost; gross has higher headline rent but predictable cost.
Is modified gross the same as modified net?
Yes, the terms are used interchangeably. Both describe a structure between full-service gross and triple net where some operating costs are passed through and some are bundled into base rent. The exact split varies by market and building.
Why do landlords prefer NNN?
NNN shifts operating-cost risk and inflation exposure to the tenant. Landlord captures a more predictable income stream and benefits from lower operational involvement. Investors value NNN buildings at lower cap rates because the income is more bond-like.
What’s an absolute NNN lease?
Absolute NNN (“bondable lease”) puts every cost on the tenant including structural replacement, capital improvements, and all reserves. Common in single-tenant freestanding buildings (Walgreens, McDonald’s, bank branches). The landlord is essentially a financial owner with no operational role.
How does percentage rent work?
Percentage rent is a retail/restaurant overlay on top of base rent. Tenant pays base rent plus a percentage (typically 5 to 7% for apparel, 3 to 5% for restaurants) of gross sales over a breakpoint. The natural breakpoint = annual base rent / percentage rate.
Can I switch lease structures mid-term?
Rarely mid-term, more commonly at renewal. NNN to MG is uncommon (landlord-unfriendly). MG to NNN is somewhat common at renewal. Always model the all-in TCO before agreeing to a structure conversion.
Which structure is most common in 2026?
For multi-tenant office: modified gross or NNN, with NNN dominant for 5,000+ SF deals. For retail strip centers: NNN with percentage rent overlay. For freestanding retail and restaurant: absolute NNN. For industrial: NNN.
Does the lease structure affect the calculator math?
Yes. The pillar commercial lease cost calculator handles all three structures. Toggle the lease structure input to see how NNN/CAM are added on top of base rent (NNN), partially included (modified gross), or fully bundled (full-service gross).
Related calculators
- Pillar: all-in commercial lease cost calculator
- NNN lease calculator
- CAM charges calculator
- Tenant improvement allowance calculator
Related guides
Sources
- Cushman & Wakefield Triple Net Lease Explainer accessed 2026-05-02
- LoopNet Lease Types Guide accessed 2026-05-02
- BOMA Experience Exchange Report accessed 2026-05-02
Not financial or legal advice. Estimates based on publicly available market data and broker reports. Commercial real-estate is highly local and deal-specific. Consult a licensed commercial real-estate broker and a real-estate attorney before signing any lease.