What is a 'Gross Lease'

A gross lease is a type of commercial lease where the landlord pays for the building's property taxes, insurance and maintenance. A gross lease can be modified to meet the needs of a particular building's tenants. For example, a gross lease may require the tenant to pay the utility bills.

BREAKING DOWN 'Gross Lease'

The opposite of a gross lease is a net lease. Under a net lease, the tenant is responsible for some of the additional costs associated with the property. There are three types of net leases: single net, double net and triple net. Under a single net lease, the tenant pays rent plus property taxes. Under a double net lease, the tenant pays rent plus property taxes and insurance. Under a triple net lease, the tenant pays for rent plus property taxes, insurance and maintenance.

A gross lease allows the tenant to pay one flat fee in exchange for use of the property. The property owner is responsible for much of the associated fees associated with property ownership, such as property taxes and building repair costs, and may be responsible for certain use-based costs, such as standard utilities.

When determining the rental fee for a gross lease, the property owner can take into account all of the costs associated with the property and create a suitable monthly rental amount based on that information. The tenant is paying a fixed monthly fee that can cover a wide variety of expenses being handled by the property owner.

Gross Lease Risks and Benefits

A gross lease may actually cost a tenant more than if the property was associated with a net lease. Since the rental fee is based off of an estimate of the associated costs, created solely at the property owner's discretion, the property owner may overestimate the costs and pass that to the tenant as a higher rate. The benefit is that the exact cost is known from month to month, regardless of usage.

Net leases may allow tenants more control over certain costs and aspects of the property, but they come with a higher level of responsibility. If the tenant agrees to handle maintenance, the tenant may be able to make certain aesthetic changes to the property, such as selecting paint colors or landscaping, but the tenant will also be responsible for any necessary repairs. The tenant can also use discretion in keeping utility costs lower but will have to adapt if those costs rise unexpectedly.

Modified Gross Leases

A modified gross lease holds the major provisions associated with a gross lease, but it can be adjusted to suit the needs of the property owner and the tenant. These modifications may state that the tenant is responsible for the costs associated with the electric utility, but that the property owner is responsible for waste pickup.

RELATED TERMS
  1. Modified Gross Lease

    A type of real estate rental agreement where the tenant pays ...
  2. Single Net Lease

    A commercial real estate lease agreement in which the tenant ...
  3. Double Net Lease

    An agreement in which the tenant is responsible for both property ...
  4. Triple Net Lease

    A lease agreement that designates the lessee (the tenant) as ...
  5. Net Lease

    A provision that requires the tenant to pay a portion or all ...
  6. Lease

    A legal document outlining the terms under which one party agrees ...
Related Articles
  1. Investing

    How Does a Modified Gross Lease Work?

    A modified gross lease is a rental agreement where, in addition to their rent, tenants pay a share of other costs associated with the property.
  2. Managing Wealth

    Millennials Guide: How To Read a Lease

    Everything you need to know before you rent a home.
  3. Investing

    How Does an Operating Lease Work?

    Operating lease is a term used mostly in accounting to denote a lease that gives the lessee rights to use and operate an asset without ownership.
  4. Retirement

    Could Being a Landlord Pay for Your Retirement?

    If you have the money to buy them and the energy to run them – or the funds to pay a good manager – rental properties can help pay for your retirement.
  5. Investing

    Commercial Real Estate: How it Works

    The ins and outs of what commercial real estate companies do.
  6. Managing Wealth

    What is a Capital Lease?

    A lease considered to have the economic characteristics of asset ownership.
  7. Managing Wealth

    Rental Properties: Cash Cow Or Money Pit?

    Create a valuation system to forecast the profitability of an income-producing property.
  8. Financial Advisor

    3 Things to Consider When Renting By the Room

    Although renting by the room can increase returns on rental property, it does come with a few caveats.
RELATED FAQS
  1. What are the differences between single, double and triple-net leases?

    Learn the ins and outs of net lease agreements, including the key differences between single net, double net and triple net ... Read Answer >>
  2. What are the three "nets" of an NNN lease?

    Learn what the three "nets" are in an NNN lease and how they affect the responsibilities of both landlord and tenant in a ... Read Answer >>
  3. What kinds of real estate transactions use triple net (NNN) leases?

    Learn how a net-net-net or triple net lease works and why it is popular in commercial real estate transactions. It is also ... Read Answer >>
  4. How does the value of the real estate impact the value of a triple net (NNN) lease?

    Understand how the value of the real estate involved in a triple-net lease impacts the value of the lease both positively ... Read Answer >>
  5. Why might a bond agreement limit the amount of assets that the firm can lease?

    Bond covenants can limit the amount of leases a company can have because leasing contracts are a form of debt. Taking on ... Read Answer >>
Hot Definitions
  1. IRS Publication 970

    A document published by the Internal Revenue Service (IRS) that provides information on tax benefits available to students ...
  2. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  3. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  4. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  5. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  6. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
Trading Center