Understanding Commercial Lease Types
Triple Net, Double Net, Gross and Modified Gross — explained simply.
Rent, rates & taxes, insurance, maintenance, utilities and operating costs, with structural items normally remaining with the landlord.
The landlord retains selected responsibilities such as building insurance or certain maintenance items.
The tenant pays one fixed rental and the landlord carries the bundled property operating costs.
The parties agree which costs sit with the tenant and which remain with the landlord.
Commercial lease labels can sound straightforward, but the allocation of costs varies from deal to deal. A tenant may hear terms such as Triple Net, Gross or Modified Gross and assume the cost responsibility is obvious. In reality, the lease wording and recovery schedules must always be checked carefully.
The four structures below provide a practical framework for understanding who typically pays what.
1. Triple Net Lease (NNN)
Core principle: the tenant carries most of the property-level operating costs in addition to rent.
- base rent
- municipal rates and taxes
- building insurance or recoverable insurance contributions
- repairs and maintenance, subject to the lease
- utilities and operating costs
The landlord normally remains responsible for structural elements such as the roof, slab and external walls, although the exact split depends on the lease. Many South African industrial leases are structured on a net basis broadly similar to NNN.
2. Double Net Lease (NN)
Core principle: the tenant pays most recurring costs, but the landlord retains selected responsibilities.
- rates and taxes
- utilities
- insurance for contents / own business risks
- building insurance
- certain maintenance items
This structure is less common in South Africa than a broadly net industrial lease, but it can still appear depending on the asset and negotiations.
3. Gross Lease
Core principle: the tenant pays one agreed rental while the landlord carries the bundled property operating costs.
- rates and taxes
- building insurance
- maintenance
- operating costs
For the tenant, the attraction is cost predictability. For the landlord, the risk is that property expenses increase faster than the rental recovery. Gross structures are often associated with office, serviced and flexible-space environments.
4. Modified Gross Lease (Semi-Gross)
Core principle: a negotiated hybrid between Gross and Net leasing.
- the tenant pays base rent plus selected operating costs, utilities, or increases above a defined base year
- the landlord may retain responsibility for rates, insurance and selected repairs or maintenance
- the allocation can be adjusted according to tenant strength, property condition and deal terms
Why the lease type matters
The label does not determine the economics by itself. The real question is which party carries which cost, how recoveries escalate, and what happens when costs change.
- monthly outgoings and total occupancy cost
- exposure to rates, utilities and operating-cost increases
- long-term cash flow and landlord return
- tenant cost predictability
- maintenance and repair risk
The practical takeaway
Do not rely on the lease label alone. Before signature, both landlord and tenant should agree a clear schedule showing every major cost category, who is responsible for it, whether it is included in the rental or recovered separately, and how that charge escalates.
Clear definitions reduce disputes and make negotiations fairer for both sides.