Gross Lease

Gross leases are most common in multi-tenant office buildings (often called "full-service gross") where utilities, janitorial, and common-area costs are impractical to sub-meter and bill per tenant. Base rent is set high enough for the landlord to cover expected operating costs, so the landlord bears the risk (and the upside) of expenses coming in above or below the assumptions baked into rent.

A true gross lease is relatively rare outside office and some smaller retail; most landlords instead use a modified gross structure that still lets the tenant absorb some expense growth. The key negotiation point in any gross lease is the operating expense "base year" or "expense stop" — if the lease includes one, the tenant may still be billed for increases in operating costs above that baseline in later years, which functions like a hybrid with modified gross.

For underwriting purposes, a gross lease shifts more expense volatility onto the landlord than an NNN or modified gross structure, which is one reason single-tenant net-lease investment products trade at tighter cap rates than gross-leased multi-tenant office.