Gross Lease

A gross lease — sometimes called a full-service lease — is one where the tenant pays a single all-in rent and the landlord pays the operating expenses of the building: taxes, insurance, utilities, cleaning, repairs, management. The tenant writes one cheque and gets a stable cost line; the landlord absorbs the variability. It is the simplest form of commercial lease and, in office buildings, the historical default before modified-gross took over.

How a gross lease works

The mechanic is plain. Base rent is set at a level that incorporates the landlord's expected operating cost plus margin. If the building's heating bill rises, the landlord eats it. If real estate taxes rise, the landlord eats those too. The tenant's only inflation risk is whatever escalation the lease contains — typically a fixed percentage step (2.5% to 4% per annum) or a CPI link.

Because the landlord is taking the operating-cost risk, gross leases tend to price higher per square foot than triple-net leases for an equivalent space. The gross-vs-net headline number is misleading on its own; the comparable measure is net effective rent, computed by subtracting the operating cost a tenant would otherwise pay from the gross rent and seeing what is left.

When gross makes sense for the tenant

A gross lease is ideal when:

• The tenant is small and does not want to manage operating-cost variance.
• The tenant's space is a fraction of a large multi-tenant building, so direct expense allocation would be administratively heavy.
• The lease term is short (one to three years) and operating-cost exposure is bounded.
• The tenant prefers predictable budgeting over economic upside.

The trade-off is that the tenant has no control over operating decisions and limited visibility into how the landlord is running the building. There is also no economic benefit if the building gets cheaper to run — efficiency gains accrue to the landlord.

Gross vs modified gross vs net

A pure gross lease is now uncommon in larger US office markets. Most "full-service" leases are actually modified gross with a base year: the tenant pays a base rent that bundles a specified base year of operating expenses, and only pays its share of expenses above that base year. So if the base year is set at, say, $12 per square foot of operating cost, and operating cost rises to $13 in year three, the tenant pays the additional $1 (its pro rata share of the increase). Pure gross is closer to fixed-cost full coverage; modified gross is closer to a deductible.

A triple-net lease is the opposite: base rent is low, and the tenant pays separately for taxes, insurance, and operating expense. NNN dominates single-tenant retail and net-lease investments; gross and modified gross dominate multi-tenant office.

Negotiating a gross lease

Three points matter most.

The first is the escalation mechanism. A flat 3% step is predictable. CPI-linked is fairer but more volatile. A "lesser of CPI or 4%" cap is a tenant-favourable middle ground. Beware compounding language — "3% over the prior year's rent" compounds, while "3% over the original base rent" does not.

The second is what is excluded from "full service". Even gross leases often carve out tenant-specific utilities (after-hours HVAC, dedicated circuits, server-room cooling), tenant-paid janitorial above building standard, and trash removal beyond a certain volume. The line between included and not-included can shift in negotiation.

The third is the definition of operating expenses for the base year, if a base year applies. Landlords sometimes structure leases so the base year is artificially low (commencement during a partial year, or before stabilisation), which means the tenant pays escalations on a phantom baseline. Insist that the base year be a normal, fully-occupied, fully-grossed-up year — or negotiate a higher base rent in exchange.

APAC equivalents

In Hong Kong and Singapore, "inclusive" or "all-in" leases approximate a gross lease, but in practice most office leases separate a management fee from base rent. The base rent line is closer to a "net of operating cost" figure, and the management fee plus government rent / property tax effectively brings it to a gross-equivalent number. Underwriting always works in net-effective terms.

Japanese office rents historically include 共益費 (common service charge) inside or alongside base rent. Older leases often quoted rent inclusive of common-service charge ("共益費込み"), making them functionally gross. Newer Tokyo leases — particularly in Marunouchi and Otemachi — separate the two, which makes them modified gross in practice.

Whichever structure the lease uses, the comparable economic terms are: face base rent, escalation, the operating-cost component (separate or bundled), and the gross-up rules. LeaseTrace pulls those four fields per lease with citations back to the source page so you can compare a portfolio of gross, modified-gross, and net leases on a single line.