The Complete Guide to Commercial Real Estate Lease Types: Office and Retail Spaces Explained
Navigating the world of commercial real estate means understanding the agreements behind
every office or retail space. Knowing the different types of commercial leases could save your
business from costly surprises—and help you negotiate terms that fit your needs. This guide
breaks down the core lease types you’ll encounter and shows how costs are split between
landlords and tenants. If you’re renting or investing in a retail shop, office suite, or anything in
between, this is the essential knowledge you need to make smart decisions.
Core Types of Commercial Real Estate Leases
Commercial leases come in a few main styles. Each shares out costs like rent, taxes, insurance,
and maintenance in different ways. Your bottom line depends on the details buried in these
agreements, so it pays to recognize the core lease structures used across offices and retail.
Gross Lease (Full Service Lease)
A gross lease—sometimes called a full service lease—bundles everything into one rent payment.
In this setup, you pay a single figure each month and the landlord covers nearly all building
expenses, from property taxes to maintenance, utilities, and insurance.
These leases are common in multi-tenant office buildings, especially in larger cities or high-rise
complexes. The big advantage? Predictable payments. No surprise bills for snow removal or
property tax hikes. You focus on your business, knowing the rest is handled.
On the flip side, gross leases often set a higher rent because the landlord factors in those hidden
costs. You might also pay for extra utilities if you have above-average usage.
Best for: Established businesses in office towers, law offices, medical suites, and those who want
simple bookkeeping.
Net Lease Variations: Single, Double, and Triple Net (NNN)
Net leases shift some or most building costs onto the tenant, with the alphabet soup of single-net,
double-net, and triple-net (NNN) defining how much responsibility you take on.
Single Net (N): You pay the rent plus one expense—usually property taxes. The landlord
still picks up insurance and maintenance, but your risk starts to go up.
Double Net (NN): Your payments include rent, property taxes, and building insurance.
Maintenance remains with the landlord. This lease is found in some strip retail centers
and smaller offices.
Triple Net (NNN): The most hands-off deal for landlords, and the most cost-predictable
for them. You pay the rent plus property taxes, building insurance, and all maintenance
expenses (think roof repairs, landscaping, and communal electric bills). NNN leases are
extremely common in retail, single-tenant properties, and franchises.
Absolute NNN means you handle all costs—no matter what, even if the roof falls in. These
leases often appear in single-tenant locations like restaurants, banks, and gas stations.
Pros: Base rent is often lower. Each tenant covers their true share of costs. NNN is perfect for
national retailers or tenants wanting to control their expenses.
Cons: Watch for unpredictable costs. Snow storms mean a big bill for snow removal. Unexpected
repairs can land in your lap.
Modified Gross & Modified Net Leases
Modified leases balance things in the middle. In a modified gross lease, you pay base rent and
some—but not all—operating costs. Maybe you pay utilities while the landlord handles taxes and
insurance, or you split maintenance over a certain dollar amount.
These leases are common in multi-tenant office buildings or small retail strips. They’re often
custom to the property or tenant mix, bringing welcome flexibility but requiring sharper attention
to the contract details.
The big win? These leases can be tailored to fit, so you avoid footing the bill for someone else’s
wasteful electric use or unexpected repairs out of your control.
Drawback: Terms can be more complex. Every shared expense is negotiated, so clear paperwork
and solid communication are essential.
Specialized Lease Structures in Commercial Real Estate
Some businesses don’t fit a standard mold, and their lease types reflect that. Let’s break down
some less-common and specialty lease structures you might see in certain office or retail settings.
Percentage Lease
Popular in shopping malls, restaurants, and high-traffic retail, the percentage lease gives the
landlord a share of your business success. You pay a base rent plus a percentage of gross sales
(often after hitting a sales threshold).
This lease links your costs to your store’s real-world performance. If you thrive, the landlord
shares the reward; if business slumps, you maintain a lower fixed rent. Grocery stores, national
chain stores, and large specialty retailers often use this in prime locations.
Perfect for: Startups and retail brands in locations with variable traffic where base rent alone may
be a stretch.
Risk: If your business takes off, so does your rent. Watch the “breakpoint”—the sales level when
extra rent kicks in.
Other Lease Variations and Considerations
Ground Lease: You lease the land but not the structure. You build (and usually own) the
building, but at the end of the term, ownership passes to the landowner. These are
common for banks, fast-food chains, or any build-to-suit project.
Variable or Index Lease: Rent adjusts based on inflation indexes or operating costs.
Common in longer-term leases to keep payments tied to the economy or current
expenses.
Regulatory Impacts: Standards like ASC 842 (US) and IFRS 16 (international) change
how companies report lease obligations. Lease accounting software helps businesses
track lease expenses, keep compliant, and avoid audit headaches.
These structures provide options for tenants with unique needs and for landlords looking to
maximize value over decades.
Conclusion
With so many lease options—gross, net, modified, percentage, and others—it’s clear that not all
commercial real estate agreements are created equal. Each structure controls who pays for what
and affects your cash flow, risk, and even the future of your business.
Understanding the fine print of office and retail leases means more than just seeing what you’ll
pay each month. It’s about knowing when (and what) rent features might cost you more and
where you can negotiate. Seasoned tenants rely on expert guidance from brokers, attorneys, and
accountants to get the best possible deal.
Never sign a commercial lease without digging into these details. Take time to match the lease
type to your company’s needs, ask plenty of questions, and put everything in writing. The right
lease sets you up for long-term success, letting you focus on growth instead of surprises.
