The core difference comes down to who pays the property’s operating expenses. In a triple net (NNN) lease, the tenant pays base rent plus their proportional share of property taxes, building insurance, and maintenance/common area costs. This shifts most of the variable cost risk to the tenant, and it’s why NNN leases are common in retail and standalone commercial buildings — the landlord’s income becomes more predictable since expense increases pass through to the tenant.
A gross lease works the opposite way: the tenant pays one flat rent amount, and the landlord is responsible for covering taxes, insurance, and maintenance out of that rent. This is simpler for tenants to budget around since there’s no exposure to rising operating costs, but landlords typically price the base rent higher to account for that risk.
There are also hybrid structures worth knowing. A modified gross lease splits some expenses between landlord and tenant — for example, the tenant might cover utilities and janitorial while the landlord covers taxes and insurance. This is common in multi-tenant office buildings where usage varies significantly between tenants.
For an investor evaluating a commercial property, the lease structure directly affects how you should think about net operating income and risk. A property with NNN leases in place generally provides more predictable, lower-maintenance income, which is part of why NNN properties often trade at lower cap rates than comparable gross-lease properties — investors pay a premium for that predictability.