How to Recognize Common Lease Types in Commercial Real Estate
Introduction
In commercial real estate, lease types vary depending on the type of property and tenant needs. Each lease structure shifts different responsibilities between landlord and tenant, and recognizing these differences is key for both investors and tenants.
Purpose:
This article helps you quickly identify the most common lease types across different commercial property sectors—retail, office, industrial, land, and investment properties.
Overview:
We’ll explore the lease types typically used in different property categories, breakdown what each lease entails, and highlight what landlords, tenants, and investors should watch for.
Step 1: Understand Lease Types by Property Use
Retail Properties
Lease Type: Triple Net (NNN) Lease
Explanation:
Most retail leases are NNN, where tenants are responsible for property taxes, insurance, and CAM (common area maintenance) in addition to base rent.
Actionable Tip:
Always ask for a breakdown of the estimated NNN charges to calculate your total rent accurately.
Office Properties
Lease Types:
Full Service Gross Lease
Modified Gross Lease
Full Service with Base Year Expense Stop
Explanation:
Office leases typically include more services in the base rent. A Full Service Gross Lease covers most operating expenses. A Modified Gross Lease may require tenants to share future increases in costs above a base year—a concept known as an Expense Stop.
Actionable Tip:
Check the lease for how increases in expenses are calculated and whether you’re protected by a base year cap.
Industrial Properties
Lease Type: Triple Net (NNN) Lease
Explanation:
Like retail, most industrial leases use a NNN structure where the tenant is responsible for their share of property taxes, insurance, and maintenance.
Actionable Tip:
Because industrial tenants often occupy large spaces, minor changes in NNN costs can significantly impact total rent—review estimates closely.
Land or Outside Storage Leases
Lease Type: Double Net (NN) Lease
Explanation:
In these cases, tenants typically pay only property taxes and insurance. There’s little to no CAM since the land is unimproved or minimally maintained.
Actionable Tip:
Understand that with limited landlord involvement, tenants are often responsible for all property maintenance.
Step 2: Know What Investors Look For
Lease Types Preferred:
Triple Net (NNN) Lease
Absolute Net Lease
Explanation:
Investors prefer leases that offer predictable income and minimal landlord responsibilities. An Absolute Net Lease goes a step further than a NNN lease by placing all responsibility—including building structure and roof—on the tenant.
Conclusion
Summary:
Recognizing lease types by property category helps tenants budget correctly and enables investors to identify attractive income-producing properties. Whether it’s a Triple Net lease for a retail storefront or a Full Service Gross lease for office space, each structure carries different cost and responsibility implications.
Key Takeaways:
Retail & Industrial: Usually NNN
Office: Often Full Service Gross or Modified Gross
Land: Typically Double Net
Investments: Look for NNN or Absolute Net leases for passive income
Let me know if you’d like this turned into a downloadable PDF, or contact me if you would like to learn more about commercial real estate.
Matt Kulbe
Since 2007 Matt has specialized in Commercial Real Estate, specifically in Industrial and Office leasing and investment sales. He has been involved in over 850 commercial real estate transactions. With a wealth of Industrial & Office experience, Matt has actively been involved with Landlords, Tenants, Buyers and Sellers from negotiations to execution, while focusing on the client’s needs and business.
