Gross lease 101: A simple guide for businesses and landlords
Is your commercial lease eating up more money than expected? Many business owners sign a lease thinking they’re paying just rent, only to be hit with surprise costs—maintenance fees, property taxes, insurance, and more. This can throw off budgeting and lead to financial headaches.
A gross lease eliminates those surprises. It bundles all costs into one fixed monthly payment, making expenses predictable and easy to manage. It’s a common setup in office buildings and retail spaces, helping tenants focus on their business instead of fluctuating property costs.
What is a gross lease?
A gross lease is a rental agreement where the tenant pays a single, fixed rent amount that covers most or all property-related expenses. Unlike net leases, where tenants pay additional costs like property taxes, insurance, and maintenance, a gross lease keeps things simple by bundling those expenses into the rent.
Here’s how it works: The landlord collects a set monthly payment and takes care of property expenses, like repairs, maintenance, and building insurance. In some cases, utilities may also be included. This setup makes budgeting easier for tenants since there are no unexpected costs.
Gross leases are common in office buildings, retail spaces, and medical facilities, where businesses prefer stable and predictable expenses. This type of lease is especially useful for tenants who don’t want to deal with fluctuating property costs or maintenance responsibilities.
While it’s a straightforward setup, the landlord usually adjusts the rent to cover these additional expenses. This means the total rent in a gross lease may be higher than in a net lease, but in return, tenants get a stress-free rental agreement without having to track extra bills.
How a gross lease works
Payment structure
With a gross lease, tenants pay a single, agreed-upon rent each month. That amount covers not only the use of the space but also property-related expenses like:
- Building maintenance
- Property taxes
- Insurance
- Common area upkeep (cleaning, landscaping, etc.)
Because everything is wrapped into one payment, tenants avoid surprise costs. This makes it easier for businesses to budget their expenses without worrying about fluctuating utility bills or property tax increases. However, this convenience often comes at a higher rental price because landlords calculate these extra costs into the rent.
Who manages the property costs?
In a gross lease, the landlord is responsible for managing and paying for property expenses. This includes repairs, building upkeep, and any costs associated with running the property.
However, utility costs can vary:
- Some gross leases include utilities, meaning tenants don’t have to worry about water, electricity, or internet bills.
- Other leases require tenants to pay for utilities separately, especially if usage varies significantly from business to business.
Before signing, tenants should confirm exactly what’s covered in the rent to avoid confusion.
Why landlords use gross leases
For landlords, gross leases simplify financial management. Instead of tracking multiple payments from tenants for different expenses, they receive one fixed rent payment and handle the costs themselves.
Gross leases also attract tenants who prefer a predictable rent structure—this is especially appealing for startups, small businesses, and companies that need consistent overhead costs.
While landlords take on more risk in a gross lease (since expenses can fluctuate), they often compensate by charging a higher base rent to protect their profits.
The different types of gross leases
Not all gross leases work the same way. There are three main types, each offering different levels of cost-sharing between tenants and landlords.
Full-service gross lease
A full-service gross lease is the most straightforward type. The tenant pays a fixed rent, and the landlord covers all property expenses, including:
- Maintenance and repairs
- Property taxes
- Insurance
- Utilities (in most cases)
This is common in office buildings, co-working spaces, and some retail centers. It’s a hassle-free option for tenants, as they don’t have to worry about unexpected costs. However, since the landlord absorbs all financial risk, rents are usually higher compared to other lease types.
Modified gross lease
A modified gross lease is a mix between a gross lease and a net lease. In this setup:
- The tenant pays a base rent, plus certain shared costs (like utilities, janitorial services, or maintenance fees).
- The landlord still covers major expenses like property taxes and insurance.
This type of lease is common in multi-tenant commercial buildings, where landlords split costs among tenants to keep the rent fair for everyone.
Why tenants like it: They still get predictable rent, but they pay only for specific expenses that directly affect them (such as electricity and internet).
Why landlords like it: It reduces their financial burden while keeping leases attractive to tenants.
Absolute gross lease
An absolute gross lease is the most tenant-friendly option because the landlord covers everything, with no exceptions. This means tenants never pay for maintenance, property taxes, utilities, or repairs—it’s all included in their fixed rent. This type of lease is rare and usually found in:
- Corporate headquarters that want a predictable long-term lease.
- High-end commercial spaces, where landlords take full responsibility for keeping the property in top condition.
Because landlords take on all financial risks, the rent in an absolute gross lease is usually the highest among all lease types.
Gross lease vs. net lease: Key differences
When choosing a commercial lease, one of the biggest decisions tenants and landlords face is whether to go with a gross lease or a net lease. The key difference lies in how expenses are handled. In a gross lease, the tenant pays a single, fixed rent that includes most, if not all, property-related costs. This means that once the rent is set, the tenant doesn’t have to worry about additional charges like maintenance, property taxes, or insurance.
A net lease, on the other hand, shifts some of these financial responsibilities to the tenant. Instead of a flat rent covering everything, the tenant pays a base rent plus separate costs for things like taxes, insurance, and maintenance. This structure can lead to lower base rent but also introduces variable costs that can fluctuate depending on market conditions, making budgeting more challenging for tenants.
Within net leases, there are three main variations. A single net lease requires tenants to pay rent plus property taxes, leaving the landlord responsible for other expenses. A double net lease adds insurance costs to the tenant’s responsibilities. A triple net lease, which is the most landlord-friendly option, shifts nearly all costs to the tenant, including property taxes, insurance, and maintenance.
For tenants, a gross lease offers stability and simplicity, which is especially useful for businesses that want to focus on their operations rather than worrying about unpredictable property costs. Landlords, however, may prefer net leases because they minimize financial risks by ensuring that tenants share in the responsibility of rising expenses.
Deciding between a gross lease and a net lease depends on several factors, including the type of business, cash flow predictability, and willingness to take on additional costs. For businesses looking for cost certainty and minimal surprises, a gross lease is often the best choice. But if a company is willing to take on some financial risk in exchange for lower base rent, a net lease might be worth considering.
Pros and cons of a gross lease
A gross lease is often seen as the easiest and most predictable leasing structure, but like anything in business, it comes with its own set of advantages and disadvantages.
Advantages
For tenants, one of the biggest advantages of a gross lease is cost predictability. Since all major expenses are included in the rent, there are no surprise fees that could throw off monthly budgets. This is especially important for small businesses and startups that need to maintain steady cash flow without unexpected cost spikes. Instead of worrying about rising property taxes or sudden repair costs, tenants can focus on running their business.
Another benefit is the reduction in administrative work. Tenants don’t have to handle multiple bills for property expenses or deal with fluctuating costs that might require constant financial adjustments. Everything is managed by the landlord, making the process much simpler.
For landlords, gross leases can be attractive because they allow for higher rental pricing. Since the landlord is responsible for covering additional expenses, they can adjust rent accordingly to ensure that operating costs are covered while still maintaining profitability.
A gross lease can also make a property more appealing to tenants, particularly those who prefer a straightforward lease structure. Many businesses are willing to pay slightly higher rent in exchange for a hassle-free leasing experience where they don’t have to worry about maintenance and unexpected fees.
Disadvantages
While a gross lease simplifies payments, it can sometimes result in tenants paying more than their fair share. Since landlords bundle all costs into the rent, they often build in buffer pricing to cover potential fluctuations in expenses. This means a tenant might be paying for costs that don’t directly affect them or that are actually lower than estimated.
For landlords, one of the biggest downsides is the financial risk. If operating expenses increase unexpectedly—whether due to rising taxes, maintenance costs, or insurance premiums—the landlord has to absorb those additional costs without being able to pass them directly to tenants. Over time, this can cut into profits, especially if rents are locked into long-term contracts without adjustment clauses.
Gross leases also require landlords to be more involved in property management. Since they are responsible for all maintenance, taxes, and repairs, they need to ensure that the property remains in good condition while balancing costs effectively. This can be time-consuming and may require additional resources to handle property-related issues.
Despite these drawbacks, gross leases remain a popular choice in commercial real estate, especially for tenants looking for cost certainty and landlords who want to attract stable, long-term occupants.
When does a gross lease make sense?
Not every business will benefit from a gross lease, but for many, it provides a structured and predictable way to manage rental costs. This type of lease makes the most sense when stability is a priority and businesses need to maintain consistent monthly expenses without worrying about unexpected charges.
Best for tenants who…
A gross lease is ideal for businesses that prefer a fixed rental cost without additional property-related responsibilities. Companies that are just starting out or those that need to carefully manage their cash flow often find that a gross lease makes budgeting easier. Retail stores, medical offices, and professional service firms such as law offices or accounting firms benefit from gross leases because they allow them to focus on their business rather than property upkeep.
Best for landlords who…
For landlords, offering a gross lease makes sense when they want to keep full control over property expenses. This is particularly beneficial in multi-tenant properties where landlords want to avoid disputes over shared costs. If a property is in a stable market where operating costs don’t fluctuate wildly, a gross lease can be a good way to attract tenants while maintaining profitability.
Industries that benefit most from gross leases
Certain industries rely heavily on gross leases due to the nature of their business operations. Office buildings, especially those offering co-working spaces or executive suites, frequently use gross leases because tenants prefer an all-inclusive setup. Retail businesses in shopping centers also benefit from gross leases, as they can focus on sales without worrying about building maintenance or property tax increases. Medical offices, including dentists, doctors, and therapists, often prefer gross leases because they allow them to focus on patient care without property management distractions.
Factors to consider before signing a gross lease
Before signing a gross lease, both tenants and landlords need to carefully evaluate the terms to ensure they align with their financial goals and operational needs.
Rental pricing
One of the first things to consider is whether the rental price is fair based on the market. Since gross leases include additional costs, the rent is typically higher than in net leases. Tenants should compare lease rates in similar locations to ensure they’re getting a fair deal.
Included services
It’s important to clarify exactly what’s included in the rent. Some gross leases cover utilities, while others do not. Tenants should ask for a breakdown of included services, such as cleaning, landscaping, and security, to avoid misunderstandings later.
Lease flexibility
A good gross lease should include clear terms for adjustments. Landlords may include clauses that allow them to increase rent annually to keep up with inflation or rising operating costs. Tenants should negotiate for reasonable increases to avoid unexpected rent hikes.
Key takeaways
A gross lease offers a simple, all-in-one rental structure that makes budgeting easier for tenants while ensuring landlords maintain control over property expenses. While it provides cost certainty, it often comes with a higher base rent to account for expenses bundled into the agreement.
For businesses looking for predictable rent and minimal property management responsibilities, a gross lease is a great option. Landlords who want more control over their properties and an easier leasing process can also benefit from this arrangement. Before signing, it’s essential to understand what’s included in the lease, how costs are calculated, and whether there’s flexibility for adjustments. A well-structured gross lease can be a win-win for both parties, ensuring a stable and manageable rental experience.
FAQs
What is the difference between a gross lease and a triple net (NNN) lease?
In a gross lease, the tenant pays a fixed rent, and the landlord covers all property-related expenses, such as taxes, insurance, and maintenance. Conversely, a triple net (NNN) lease requires the tenant to pay base rent plus all operating expenses, including property taxes, insurance, and maintenance costs. This means that in a gross lease, the landlord assumes the financial responsibilities, while in an NNN lease, the tenant bears these additional costs.
How does a modified gross lease differ from a full-service gross lease?
A full-service gross lease includes all property expenses—like utilities, maintenance, taxes, and insurance—in the tenant’s fixed rent, providing simplicity and predictability. In contrast, a modified gross lease offers a middle ground: the tenant pays base rent plus specific expenses, such as utilities or janitorial services, while the landlord covers the remaining costs. This arrangement allows for a more customized allocation of expenses between the landlord and tenant.
Are utilities typically included in a gross lease?
In a gross lease, landlords generally cover most property-related expenses, but the inclusion of utilities can vary. Some gross leases encompass utilities within the fixed rent, while others require tenants to pay for their own utility usage separately. It’s essential for tenants to clarify with landlords which utilities, if any, are included in the rent to avoid unexpected charges.
Why might a landlord prefer a net lease over a gross lease?
Landlords may favor net leases because they transfer the responsibility of property-related expenses—such as taxes, insurance, and maintenance—to the tenant. This arrangement reduces the landlord’s financial risk associated with fluctuating operating costs and provides a more predictable income stream. Additionally, net leases can simplify property management for landlords, as tenants handle many of the ongoing expenses.
Can gross leases be negotiated to include or exclude certain expenses?
Yes, gross leases can be tailored to meet the specific needs of both parties. Landlords and tenants can negotiate which expenses are included in the fixed rent and which are excluded. For instance, a tenant might agree to pay a base rent that covers most expenses but take responsibility for their own utility usage. Clear communication and detailed lease agreements are crucial to ensure both parties understand their financial obligations.
