Net Lease

What Is a Net Lease?

A net lease is a lease in which the tenant pays a base rent plus some or all of the property's operating expenses, instead of leaving those costs with the landlord. The word "net" refers to the landlord's income: after the tenant covers these expenses, the rent the landlord keeps is "net" of them. Net leases are most common in commercial real estate, such as retail stores, restaurants, warehouses, and single-tenant office buildings. They are less common in residential housing, where tenants typically pay rent and utilities but not property taxes.

Common Types

Net leases are often described by how many expense categories the tenant pays. Definitions vary by market and contract, so the lease text always governs:

• Single net lease: the tenant pays property taxes in addition to rent.
• Double net lease: the tenant pays property taxes and insurance.
• triple net lease: the tenant pays property taxes, insurance, and maintenance.

By contrast, a gross lease usually bundles these costs into one rent figure paid to the landlord.

How It Works and Why It Matters

For landlords, a net lease can offer more predictable income, because the tenant absorbs many rising costs and the owner has less day-to-day management work. For this reason, net-leased properties are often held by investors, including real estate investment trusts (REITs). Such investments are often compared using the capitalization rate, which relates a property's income to its price.

For tenants, the main trade-off is cost uncertainty. The base rent may look lower than an all-inclusive rent, but taxes, insurance, and repairs can rise over time and are the tenant's responsibility. Reading the lease closely shows which expenses are included, how they are calculated, and who pays for major structural repairs.

Example

Consider a store that signs a triple net lease for a fixed base rent. The tenant pays that rent plus its share of property taxes, insurance premiums, and repair costs. If local taxes increase, the tenant's total occupancy cost rises even though the base rent has not changed. Because these terms are contractual, the actual division of costs depends entirely on the wording of the agreement.