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Understanding the difference between a gross lease and a net lease is crucial, and particularly imperative when negotiating rent and comparing multiple premises. Yet, sometimes it seems like the terminology of “gross”, “net”, “net-net”, and “triple-net” can’t get any more confusing.
Here is a general guide to the difference between a gross lease and a net lease, including some variations in between.
First, in order to understand the difference between gross and net leases, it is important to know what Basic Rent and Additional Rent are.
“Basic Rent” is a base rent with no other inclusions, and is often the price per square foot you will see advertised.
“Additional Rent” is an all-encompassing term which includes all monies owing over and above the Basic Rent, such as: property taxes; landlord’s building insurance; and common area maintenance (“CAM”).
CAM charges are costs and fees incurred by the landlord to operate and maintain common areas shared by all the tenants, including: lobbies; hallways; restrooms; and grounds. CAM will include, among other things:
utilities;
janitorial services;
maintenance and repairs;
snow removal and landscaping,
and often an administrative charge, which can sometimes be as high as 15% of the CAM amount.
GROSS LEASE
A gross lease is the simplest kind of lease, as the rent quoted covers everything. It includes a Basic Rent, Additional Rent, and CAM charges. The Tenant will pay the same rent every month for the full term of the lease, and any increase in rates throughout the term will be absorbed by the landlord.
A common practice with a gross lease is for the tenant to pay a Basic Rent, plus the utilities (electricity, gas, sewer/water) for which it specifically consumes. This type of lease is typically referred to as a “semi-gross” lease.
NET LEASE
A net lease is basically the opposite of a gross lease, and there are generally three different kinds of net leases: net, net net, and triple-net.
Ordinarily in a net lease, the tenant will pay a Basic Rent, plus realty taxes; a net net lease is Basic Rent, plus taxes and insurance; and a triple-net lease means the tenant pays a Basic Rent, plus taxes, insurance, and CAM. In essence, the tenant pays for all costs associated with the premises. Additional Rent for a triple net lease can sometimes run almost as much per square foot as Basic Rent, so it is critical to ensure you know what you are agreeing to when negotiating a lease.
WHAT’S INCLUDED?
GROSS | SEMI-GROSS | NET | NET NET | TRIPLE NET | |
Basic Rent | √ | √ | √ | √ | √ |
CAM | √ | √ | √ | √ | |
Insurance | √ | √ | √ | ||
Property Taxes | √ | √ | |||
Utilities | √ |
Of course, there are always many different adaptations on any lease, each including a number of variations of the charges included or excluded. It is essential to ensure you review what expenditures are covered by the Additional Rent, and confirm that all operating costs are clearly listed in the lease.
Your knowledge ahead of time about the differences between gross and net leases, and a clear understanding of their distinctness, may help you negotiate a better rate for the space you have chosen.
Remember, it is always a good idea to review any contract with an experienced professional to avoid surprises and feel confident in signing the lease.
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