NNN vs. gross vs. modified gross: how commercial leases actually split the costs
Updated August 17, 2026·4 min read·California
The lease type tells you who pays the building's operating costs. In a triple-net (NNN) lease the tenant pays base rent plus its share of property taxes, insurance, and maintenance. In a gross (full-service) lease the landlord covers those out of a higher rent. Modified gross is a negotiated split. Two spaces quoted at the same “$3.00/sq ft” can cost very different amounts once you know which one this is.
The three structures
Type
Tenant pays
Typical for
Triple-net (NNN)
Base rent + pro-rata taxes, insurance, CAM/maintenance (often utilities and janitorial too)
Retail, industrial, single-tenant buildings
Gross / full-service
One rent number; landlord pays operating costs (often with a base-year cap)
Multi-tenant office
Modified gross
Base rent + some agreed items (e.g., utilities, janitorial) — landlord keeps taxes/insurance
Small office, mixed-use, flex
How rates are quoted (and why they're not comparable)
California commercial listings quote rent as $/sq ft per month, $/sq ft per year, or a gross monthly amount — and the number may or may not include the NNN charges. Ask for three things on every space: the base rate and its unit, the lease type, and the current-year NNN or operating-expense estimate per square foot. Then compute an all-in monthly number for your square footage. Only that number is comparable across listings.
Terms that decide the real cost
CAM (common area maintenance) — parking lot, landscaping, lighting, security, management fee. Ask what's included, whether it's capped, and how it reconciles annually.
Base year (gross leases) — the landlord covers expenses up to year-one levels; you pay increases above that. A high base year protects you.
Escalations — fixed annual bumps (often around 3%) or CPI-linked. Model the whole term, not just year one.
TI allowance — landlord-funded build-out, quoted per square foot; a longer term usually earns more TI.
Free rent / abatement, options to renew, right of first refusal on adjacent space, assignment and subletting rights, and any personal guarantee — negotiate all of these; the base rate is not the only lever.
Load factor — office rent is often charged on rentable square feet (your suite plus a share of lobbies/hallways), not usable. Ask for both numbers.
California-specific things to know
Commercial leases are governed by the lease, not by residential tenant-protection law — with one recent exception: since January 1, 2025 (SB 1103), qualified commercial tenants — microenterprises with five or fewer employees, restaurants with ten or fewer, and nonprofits with twenty or fewer, who give the landlord written notice of that status — get advance notice of rent increases on month-to-month tenancies, and landlords must allocate and document any building operating costs (CAM) they pass through and provide the backup on request. Separately, landlords must state in every commercial lease whether the property has been inspected by a Certified Access Specialist (CASp) and provide the report if one exists (Civil Code §1938), and larger buildings carry energy-benchmarking duties. Get a commercial-experienced attorney to review any lease longer than a year — the cost is small next to a five-year commitment.
This is general information, not legal advice. Nalren Corp. is a licensed California real estate brokerage (DRE #02423715) and a real estate marketplace — not a law firm — and it does not publish lease-rate estimates or valuations for any property. Every dollar figure on this page is an illustrative example, not a current market rate or a quote for any space — actual rents, operating expenses, and pass-throughs are set by the specific lease and building. Before you sign or renew a commercial lease, have a commercial-experienced attorney review it and ask the landlord for the current operating-expense figures in writing.
Frequently asked questions
Which is better for a tenant, NNN or gross?
Neither is inherently better — gross gives cost certainty, NNN gives transparency and often a lower base rate. What matters is the all-in cost over the term and how much expense risk you’re taking on.
What does “$2.50 NNN” mean?
Base rent of $2.50 per square foot per month, with taxes, insurance, and CAM billed on top. Ask for the current NNN estimate to get the all-in number.
Can I negotiate CAM charges?
Yes — caps on controllable expenses, exclusions (capital items, landlord’s corporate overhead), and audit rights are all common negotiating points. Qualified small commercial tenants also have documentation rights under SB 1103.
Do commercial tenants have rent control in California?
No. Residential protections such as AB 1482 don’t apply to commercial leases; the lease controls increases and renewal. SB 1103 adds notice and cost-documentation rights for qualified small tenants, not a rent cap.
Should I use a tenant-rep broker?
For anything beyond a very small, short lease, usually yes — the landlord typically pays the commission, and a tenant rep knows the market rates and concessions currently being given.
Looking for space and want someone on your side of the table?
Request an agent — a licensed Nalren agent — or, in some cases, a licensed referral partner — will reach out to help you compare spaces on an all-in basis and negotiate terms. Free, no obligation.
