Gross, Net and Percentage Leases Explained
The short answer: The labels describe who pays a property's operating expenses. In a gross lease, the tenant pays one rent and the landlord covers most building expenses out of it. In a net lease, the tenant pays some or all of the operating expenses, "such as real estate taxes, insurance, and maintenance, either directly or by reimbursement to the landlord." A percentage lease adds rent based on the tenant's sales, usually on top of a base rent (OCC Comptroller's Handbook, Commercial Real Estate Lending). Because the labels aren't standardized, the lease itself always controls.
These terms come up most in commercial leasing. They also appear on the licensing exam: PSI's outline lists "Types of leases" under Contracts (PSI candidate bulletin). For more vocabulary, see our NJ real estate glossary.
What is a gross lease?
In a gross lease, the landlord pays the building's operating costs, such as property taxes, insurance and maintenance, and builds them into the rent. The federal bank regulator's handbook says office buildings are usually leased this way, "expenses paid by the landlord," with the tenant typically paying costs tied directly to its own occupancy, such as utilities and janitorial (OCC handbook).
For the tenant, a gross lease means a predictable payment. For the landlord, it means carrying the risk that taxes or insurance rise during the term, unless the lease says otherwise. Leases that split some expenses are often called "modified gross." The name tells you little, so read the expense clause.
What is a net lease, and what do NN and NNN mean?
The OCC defines a net lease as one where "the tenant must pay operating expenses such as real estate taxes, insurance, and maintenance, either directly or by reimbursement to the landlord." It adds that net leases may be called "net, double net (NN), triple net (NNN), or absolute net" (OCC handbook).
Here's the part many people miss. The same handbook warns that these terms "lack universally agreed-upon definitions." It says the lease should always be analyzed to see which expenses each side pays, rather than relying on the label. You'll often hear "triple net" described as the tenant paying taxes, insurance and maintenance. Even so, a "NNN" lease can still leave the roof or the structure with the landlord.
The OCC describes common patterns:
- Retail: leases are commonly net. Tenants reimburse the landlord for common area maintenance (CAM), "including landscaping, refuse collection, taxes, insurance, and lighting of parking lots and walkways," while the landlord usually keeps the roof and outer walls.
- Single-tenant industrial: usually net, with the landlord maintaining only the roof and outer walls.
- Multi-tenant industrial: landlords typically handle common area maintenance and bill tenants for it.
What is a percentage lease?
A percentage lease ties part of the rent to the tenant's business. The OCC describes anchor tenants that "may pay a flat rate plus a percentage of their annual sales (percentage rent)." It also notes that percentage rents "may vary considerably and are inherently less predictable" (OCC handbook).
Many percentage leases charge the extra rent only on sales above a set level, often called the breakpoint. Here's how that works, with made-up figures to show the method:
- Base rent: $60,000 a year
- Percentage rent: 5% of annual sales above $1,000,000
- Tenant's sales this year: $1,300,000
- Percentage rent: 5% × $300,000 = $15,000
- Total rent: $60,000 + $15,000 = $75,000
Percentage leases are mostly a retail tool, because the extra rent depends on the tenant's sales.
How do the lease types compare?
| Gross | Net (NN, NNN) | Percentage | |
|---|---|---|---|
| Who pays taxes, insurance, upkeep | Landlord, built into rent | Tenant, directly or by reimbursement, as the lease specifies | Depends on the lease; often combined with net terms |
| Rent | One payment that covers expenses | Base rent plus the expenses passed through | Base rent plus a share of sales |
| Who carries expense increases | Landlord | Mostly tenant | Depends on the lease |
| Where the OCC says it's common | Office | Retail, single-tenant industrial | Retail anchor tenants |
The choice matters for value, too. The OCC says working out which expenses fall on the landlord is "critical to developing an accurate estimate of cash flow and NOI." Net operating income drives the cap rate, so the lease type can change what a building is worth. Our cap rate guide walks through NOI.
Why does this matter for NJ licensees?
Leasing real estate for others for pay is licensed activity in New Jersey. The statute's definitions cover negotiating rentals and collecting rents (N.J.S.A. 45:15-3). If you're drawn to the commercial side, see our guide to commercial real estate careers in NJ. For the residential leasing rules on the exam, see the property management exam guide. For the Contracts section where "Types of leases" sits, see contracts on the NJ exam.
Whether you end up in leasing or sales, it all starts with the license. Business Elementary's 75-hour pre-licensing course is the first step.
Sources
- Office of the Comptroller of the Currency, Comptroller's Handbook: Commercial Real Estate Lending (Version 2.0, March 2022; updated March 2025): https://www.occ.gov/publications-and-resources/publications/comptrollers-handbook/files/commercial-real-estate-lending/pub-ch-commercial-real-estate.pdf
- PSI Services, New Jersey Real Estate Candidate Information Bulletin (updated 2/1/2026), Contracts outline: https://test-takers.psiexams.com/api/content/bulletin/1667
- N.J.S.A. 45:15-3, definitions (Justia): https://law.justia.com/codes/new-jersey/title-45/section-45-15-3/
Last reviewed: November 2, 2026
Frequently Asked Questions
Does a triple net lease mean the landlord pays nothing?
Not necessarily. The OCC notes that even in net retail and industrial leases, the landlord often keeps the roof and outer walls. It also warns that NN, NNN and "absolute net" have no universally agreed definitions (OCC handbook).
What are CAM charges?
Common area maintenance charges are the tenant's share of costs for shared areas. In the OCC's retail example, those include landscaping, refuse collection, taxes, insurance and parking lot and walkway lighting (OCC handbook).
What is a ground lease?
A lease of land where the tenant builds its own improvements. The OCC notes that at the end of the ground-lease term, the leasehold improvements revert to the lessor (the landowner) (OCC handbook).
Which lease type is best for a tenant?
It depends on the deal. A gross lease is easier to budget. A net lease may have lower base rent, but the tenant takes on the risk of rising expenses. Compare the total cost, including expenses, over the full term.