How does a gross lease work?
The rent is set high enough to cover the landlord's expected taxes, insurance and maintenance. The tenant pays that one amount, sometimes plus its own utilities or in-suite services. If operating costs rise faster than expected, the landlord absorbs the difference unless the lease includes a base year or expense stop.
A modified-gross lease sits between gross and net: the tenant pays rent plus some expenses, or its share of increases above a base year. Gross leases are common for smaller office suites and many residential tenancies.
See also: Commercial lease administration.
How does a gross lease compare with a net lease?
Example (illustrative figures). A suite could be offered at $30 per sq ft gross, or $20 per sq ft net plus about $10 per sq ft of estimated operating expenses. In year one the cost may be similar. Under the gross lease the landlord carries any cost increase; under the net lease the tenant's share of expenses moves with actual costs.
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