Gross vs net vs triple net leases: the math that defines who pays what

Commercial lease structures determine which side carries operating expenses, and the structure changes the math meaningfully. Gross lease: tenant pays a single rent number; landlord covers all operating costs (property tax, insurance, maintenance, utilities, management). Common in older office buildings and small retail. Landlord absorbs opex inflation risk. Modified Gross: tenant pays base rent plus a defined subset of opex (often utilities and janitorial only); landlord covers the rest. Common in mid-tier office. Risk-sharing arrangement. Net lease: tenant pays base + property tax (single net) or + tax + insurance (double net). Less common. Triple Net (NNN): tenant pays base rent plus ALL operating expenses (property tax, insurance, maintenance, management). Standard in retail strip plazas and most industrial. Landlord receives the full base rent net, opex pass-through is reconciled annually. The same property quoted at “32/sqft base + 14/sqft TMI on NNN” generates the same total tenant occupancy as “46/sqft gross” — but the landlord’s risk profile differs significantly. NNN landlords don’t carry expense inflation; gross-lease landlords do. The calculator above runs both economics so you can compare lease structures apples-to-apples.

Free rent and TI: how to back-solve the real rent number

Commercial leases routinely include free rent (months where the tenant occupies without paying base rent) and tenant inducement (TI) dollars (landlord-funded leasehold improvements to make the space tenant-ready). Both are real economic costs to the landlord and real benefits to the tenant. To back-solve the effective rent: take the total rent the landlord would receive over the term, subtract the value of free rent (free months × monthly rent) and the TI dollars, divide by the term in years. A 5-year lease at $32/sqft base + 3 months free rent + $20/sqft TI = effective net rent of ~$25-26/sqft (vs the nominal $32 face rate). For the tenant, the same math runs in reverse: total payments over term, minus free rent, minus TI received, divided by term and sqft. The tenant’s effective occupancy is lower than the face rate. Two practical implications: (a) when comparing lease offers, normalize both to effective rent before deciding — the offer with the highest face rate often has the best concessions and turns out cheaper; (b) when valuing a property by NOI, use effective rent (not face rent) — the face number is meaningless if the leases are heavy with concessions.

When the lease term matters more than the rent number

Tenants typically negotiate hard on rent and underweight lease term. From the tenant side, a longer term commits you to a specific space at a specific market level — useful if rates are rising, dangerous if your business needs flex. From the landlord side, term is the value driver because longer leases stabilize NOI and unlock better mortgage terms. A retail plaza fully leased on 10-year terms to creditworthy tenants generates a 5.5% cap rate; the same plaza with 2-year-remaining month-to-month tenants generates 7-8% cap or worse. Three asset-class-specific term considerations: Office: 3-5 year typical, with renewal options; longer terms get more TI dollars and lower base rent. Retail: 5-10 year typical for anchor tenants, 3-5 for inline; percentage rent clauses (tenant pays % of gross sales above a breakpoint) often added to long terms. Industrial: 5-10 year typical for single-tenant; longer terms with creditworthy tenants are the most lender-favoured assets in 2026 GTA. Use our cap-rate calculator and NOI valuator alongside this analyzer to see how a specific lease translates into property value. Book a 30-min lease review for an in-depth walkthrough of a specific lease offer or rent roll.

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