Understanding Commercial Leases

Gross vs. NNN, Options, and Common Pitfalls

The two big lease types: Gross vs. NNN

Commercial leases can look straightforward on the surface—rent, term, and a signature. But the fine print determines what you actually pay, how much flexibility you have, and what risks you’re taking on. This overview breaks down common lease structures, key clauses, and pitfalls that can surprise tenants and landlords.

Gross Lease (Full-Service or Modified Gross)

In a gross lease, the tenant pays a base rent and the landlord covers most (or all) building operating costs—typically taxes, insurance, and common area maintenance (CAM).

What to watch for: many “gross” leases are modified gross, meaning certain costs are still passed through (for example utilities, janitorial, or increases in taxes/operating expenses over a base year).

NNN Lease (Triple Net)

In a NNN lease, the tenant pays base rent plus property taxes, building insurance, and CAM/operating expenses (and sometimes certain repairs).

Tip: ask for an estimate of NNN charges and the last 2–3 years of operating expense history so you understand total occupancy cost.

Other lease structures you may hear

You may also see NN (double net), absolute NNN, or percentage rent (common in retail). The “right” structure depends on the property type and the business’s need for cost predictability versus control.

Options and flexibility: clauses that matter

Key clauses often include renewal options, expansion/ROFR rights, and assignment/subleasing. These provisions drive flexibility and can materially affect the value of the deal for both sides.

Renewal options

Renewal options give the tenant the right to extend the lease. Common issues include missed notice deadlines and unclear rent language (for example “fair market rent” with no process). Best practice is to define how renewal rent is set and to calendar option notice deadlines.

Assignment and subleasing

If there’s a chance you may sell your business during the lease term, negotiate assignment/sublease language early. Watch for landlord consent standards, recapture rights, and fees that reduce flexibility.

Use clause

The permitted use should be broad enough to allow your business to evolve, while still acceptable to the landlord and compliant with zoning. Overly narrow use language can limit growth or create problems during a business sale.

CAM and operating expenses: where surprises happen

In NNN and many modified gross leases, CAM and operating expenses may include snow removal, landscaping, parking lot maintenance, common utilities, property management fees, trash removal, and common area cleaning.

Protective items to consider: annual CAM reconciliations, audit rights, and clear definitions of what is (and isn’t) included—especially around capital expenditures.

Repairs and maintenance

Don’t assume the landlord handles major systems. Clarify responsibility for HVAC (maintenance and replacement), roof repairs, parking lot, plumbing, electrical, and snow/ice. This is one of the most important “gotchas” in commercial leases.

Rent increases and escalations

Common approaches include fixed annual increases, step-ups, and CPI-based increases. Make sure you understand how increases compound over time and whether there are caps or floors.

Quick checklist before you sign

Before signing, make sure you can answer:
• What is my total monthly occupancy cost (rent + NNN/CAM + utilities)?
• Who pays for HVAC, roof, and major repairs?
• How do rent increases work over time?
• What renewal options exist and what are the notice deadlines?
• Can I assign the lease if I sell my business?
• Is the permitted use acceptable and zoning-compliant?
• Are signage, parking, and access clearly defined?

Contact

If you’re planning a new lease, renewal, or relocation and would like help finding space or negotiating terms,

contact Granite Commercial Real Estate, LLC at (603) 669-2770 or www.granitecre.com.