Gross Lease

Gross leases are the opposite end of the spectrum from triple net leases. Under a gross lease, the tenant pays one flat rental rate and the landlord is responsible for all operating expenses. This structure is most common in multi-tenant office buildings, where it simplifies billing for tenants and gives landlords direct control over property maintenance and management quality.

From the landlord's perspective, gross leases carry more operating expense risk because cost increases (property tax hikes, insurance premium spikes, utility rate changes) cannot be directly passed through to tenants. To mitigate this risk, most gross leases include an expense stop or base year provision. Under a base year lease, the landlord covers all expenses at the level incurred during the first year of the lease; any increases above that base year amount are passed through to the tenant proportionally. This hybrid approach provides expense simplicity while sharing the risk of escalation.

When analyzing a gross lease property, investors must carefully model operating expense growth assumptions because those increases directly reduce NOI if not recoverable. Compare the lease's expense stop or base year provisions against projected expense growth to understand the landlord's true net income trajectory. Gross lease properties often appear to have higher rents than NNN properties, but the comparison is misleading without adjusting for the expenses embedded in the gross rent.