A triple net lease (NNN) is a commercial lease structure in which the tenant pays the base rent plus all three operating expense categories: property taxes, building insurance, and Common Area Maintenance (CAM). The "three nets" are those three expense pass-throughs — under an NNN lease, the tenant is responsible for them on top of base rent, rather than the landlord covering them out of the rent itself.
Triple Net (NNN), Modified Gross (MG), and Full Service Gross (FSG) are the three most common commercial lease structures, and they differ entirely in who pays for which expenses. Under NNN, the tenant pays base rent plus taxes, insurance, and CAM. Under FSG, the tenant pays a single all-inclusive rent and the landlord covers all operating expenses. Under MG, the landlord covers a Year 1 baseline of expenses and the tenant pays any increases above that base year.
When you see a lease quoted as "$25/sf NNN", that $25 is base rent only — the tenant pays an additional $5–$15/sf for taxes, insurance, and CAM. A quote of "$32/sf FSG" is fully loaded with no separate pass-throughs. Triple Net is dominant in retail, single-tenant net lease, industrial, and most newer multi-tenant office because it protects landlord NOI from rising operating costs; FSG is most common in trophy Class A office; MG is the middle ground used in Class B office and flex/industrial.
If you've ever looked at two commercial lease quotes that seem priced totally differently and wondered which one is actually cheaper, this is the article for you. The three most common lease structures in commercial real estate — Triple Net (NNN), Modified Gross (MG), and Full Service Gross (FSG) — aren't just different rent quotes. They're entirely different agreements about who is responsible for which expenses.
Get this wrong as a tenant and you can end up paying 30–40% more than you budgeted. Get it wrong as a broker and you'll lose deals. So let me walk you through how each one works, give you an interactive line-by-line breakdown of who pays for what, and tell you what to actually negotiate.
Understanding lease structures is essential for anyone investing in commercial real estate — whether you're the tenant signing the deal, the landlord underwriting the income, or the buyer evaluating a property's rent roll.
In This Article
- What is a Triple Net (NNN) lease?
- What is a Modified Gross (MG) lease?
- What is a Full Service Gross (FSG) lease?
- Interactive: who pays for what under each lease →
- How to read lease quotes ($25 NNN vs $33 FSG)
- Which lease type is best for tenants vs. landlords?
- What to negotiate (regardless of lease type)
1. What is a Triple Net (NNN) lease?
A Triple Net lease — abbreviated NNN — means the tenant pays the base rent plus all three operating expense categories: property taxes, building insurance, and Common Area Maintenance (CAM). The "three nets" are those three expense pass-throughs.
When you see a lease quoted at "$25/sf NNN", that $25 is just the base rent. You'll also be billed monthly for your pro-rata share of property taxes, insurance, and CAM — usually adding another $5–$15/sf depending on the asset class and market.
NNN is the dominant structure in retail, single-tenant net lease (STNL), industrial, and most newer multi-tenant office. Landlords love NNN because their net operating income is protected against rising property taxes and operating costs — those costs pass straight through to the tenant. Tenants accept it in exchange for a lower base rent.
Under NNN, tenant is responsible for all four. Example all-in cost: $32/sf
2. What is a Modified Gross (MG) lease?
A Modified Gross lease sits in between NNN and Full Service Gross. The tenant pays base rent that includes certain operating expenses (typically property taxes and insurance, sometimes also a "base year" CAM amount), but is responsible for specific expenses or any increases above a baseline.
The most common structure is a "base year" Modified Gross lease: in Year 1, the landlord covers all operating expenses included in the quoted rate. In subsequent years, the tenant pays their pro-rata share of any opex increases above the Year 1 baseline. This is sometimes called "Industrial Gross" in industrial CRE.
Modified Gross is most common in multi-tenant office buildings — especially Class B and older Class A buildings — and in some flex and industrial product. It lets landlords advertise a simpler rent quote while still passing through long-term cost growth, and it usually includes caps on opex escalation that protect tenants.
The "Base Year" Mechanic
Landlord absorbs the Year 1 baseline. Tenant only pays opex increases above that baseline.
3. What is a Full Service Gross (FSG) lease?
A Full Service Gross lease (sometimes shortened to "Full Service" or just "Gross") is the simplest from the tenant's perspective: the tenant pays one all-inclusive rate, and the landlord covers everything — property taxes, insurance, CAM, utilities, janitorial, even repairs and management.
When you see "$34/sf FSG", that's it. That's your total occupancy cost (subject to annual escalators and sometimes a "tax stop" clause where the tenant pays property tax increases over base year).
FSG is most common in Class A trophy office buildings, executive suites, coworking spaces, and government-leased buildings. Tenants pay a premium for predictability — they don't have to budget for surprise tax reassessments or insurance hikes. Landlords charge the premium because they're absorbing the volatility.
FSG bundles every cost category into a single rate. Tenant pays one number; landlord eats the volatility.
4. Who pays for what under each lease structure
Forget the rent quote for a minute. The actual structural difference between NNN, Modified Gross, and FSG is who's responsible for paying which line item. Below is an interactive breakdown of every expense category that shows up in a commercial lease — click any row to see how each structure typically handles it and what to watch for.
Use the "Show tenant exposure" button to highlight which cells the tenant is on the hook for. This single view replaces dozens of confusing line items in an LOI.
Lease Responsibility Matrix
Every line item, every lease type — who pays what
| Expense Item | NNN | MG | FSG |
|---|
5. How to read commercial lease quotes
Two of the most-searched questions on Google about CRE leases are "What does $35 NNN mean?" and "What does $6.00 sf yr mean?" — so let's decode those quickly.
Anatomy of a Lease Quote
"$35/sf NNN" or "$35.00 sf/yr NNN" means the base rent is $35 per square foot, per year, on top of the triple-net pass-through costs. For 5,000 square feet, your base rent is $35 × 5,000 = $175,000/year, or $14,583/month — plus your share of property taxes, insurance, and CAM (typically another $25,000–$75,000/year for office or retail).
"$6.00 sf/yr" usually refers to the NNN portion only — the additional operating expense load on top of base rent. So if a listing says "$25/sf base + $6/sf NNN," your all-in cost is $31/sf, or $155,000/year for 5,000 sf. For a deeper walkthrough on how rent-per-square-foot is calculated, see my full guide on how to calculate commercial rent per square foot.
When comparing quotes, always ask three questions: (1) Is the rent quoted gross or net? (2) What does that quoted rate include? (3) What's the current opex/CAM load? Those three answers turn any quote into an apples-to-apples comparison.
Worked Example
Two retail spaces, same neighborhood, same 3,000 sf:
Space A: "$28/sf NNN, $7/sf opex" → ($28 + $7) × 3,000 = $105,000/year
Space B: "$32/sf FSG" → $32 × 3,000 = $96,000/year
Space B looks more expensive on paper ($32 vs $28), but it's actually $9,000/year cheaper — and most of the cost-increase risk is on the landlord. The matrix above shows you why: under FSG, the landlord is on the hook for property taxes, insurance, CAM, and most maintenance, not you.
6. Which lease type is best?
For tenants: FSG is the most predictable but usually the most expensive upfront. NNN is the cheapest face-rate but exposes you to opex volatility (and you'll get hit when property taxes get reassessed) — I cover the tenant-side traps in detail in my breakdown of the downsides of a triple net lease. Modified Gross is the comfortable middle — predictable Year 1 cost with capped exposure to increases.
For landlords: NNN is the cleanest from an underwriting perspective — your NOI is insulated from rising costs, which is why NNN assets typically trade at compressed cap rates. FSG transfers all the opex risk to the landlord, which you have to price in. Modified Gross is a compromise that lets you market a simpler quote while still passing through long-term cost growth.
There's no universal "best" — it depends on the asset class, the market, the tenant's risk tolerance, and how long the lease term is. A 10-year NNN with no caps on opex can become brutal if taxes or insurance spike. A 5-year FSG with 3% annual escalators is essentially a fixed-cost contract.
7. What to negotiate (regardless of lease type)
Caps on controllable opex. Under NNN or MG, ask for a cap on Controllable Operating Expenses (everything except taxes and insurance) — usually 4–5% annual increase max, on a cumulative basis. This is the single biggest tenant protection in net leases.
Audit rights. The tenant should have the right to audit the landlord's CAM reconciliation each year. Landlords sometimes pass through expenses that aren't actually CAM (capital improvements, debt service, etc.). Audit rights catch this.
Base year manipulation. Under Modified Gross, push for an "artificially high" base year if the building is currently underassessed for taxes or has unusually low expenses. A higher base year means a higher landlord-paid baseline — less exposure to you on increases.
Escalator type and rate. Annual rent bumps can be fixed (e.g., 3%/yr), CPI-based, or "fair market value." Fixed is the most predictable for tenants; FMV is the worst because it can spike with the market.
Free rent / TI allowance. All three lease types can include free rent periods (1–6 months is common) and tenant improvement allowances ($10–$80/sf depending on asset class). These are negotiable separately from the lease structure itself.
Key Takeaways
NNN = lowest base rent, broadest tenant responsibility. Tenant absorbs property taxes, insurance, and CAM directly. Best for landlords; tenants need opex caps and audit rights.
Modified Gross = the middle ground. Landlord covers Year 1 baseline; tenant pays share of any increases. Most common in Class B office and flex/industrial.
FSG = predictable, premium pricing. Landlord covers nearly everything. Best for tenants who hate budget surprises; most common in trophy Class A office.
The actual difference is responsibility, not rent. Use the matrix above to understand exactly who's on the hook for each line item — that's the conversation worth having before you sign.
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About The Author:
Tyler Cauble, Founder & President of The Cauble Group, is a commercial real estate broker and investor based in East Nashville. He’s the best selling author of Open for Business: The Insider’s Guide to Leasing Commercial Real Estate and has focused his career on serving commercial real estate investors as a board member for the Real Estate Investors of Nashville.
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