Gross Lease (Full-Service Lease)

What the landlord pays under a gross lease

The economic content of a gross lease is that the landlord carries operating-expense volatility. One monthly payment covers rent plus the landlord's obligation to pay real estate taxes on the property, its property and liability insurance premiums, common-area janitorial, landscaping, parking-lot repair, snow removal, common-area utilities, and the management fee. The tenant receives no expense bill and reconciles nothing at year-end, because no expense category is left for it to reimburse.

The trade is priced explicitly: the landlord accepts cost inflation in exchange for a rent premium. A $28.00/SF gross quote is not comparable to a $20.00/SF NNN quote until the actual expense load is added to the NNN number.

• ✓Inside the landlord's gross obligation: real estate taxes, property and liability insurance, CAM (common-area cleaning, landscaping, parking, refuse, common utilities) and, unless carved out, the management fee
• ✓Still commonly billed back to the tenant even under a gross structure: in-premises janitorial, electricity for the tenant's own space, after-hours HVAC, telecommunications, and interior maintenance of the demised premises
• ✓Not expenses but part of the same structure: roof and structural repair, capital replacements, and the building systems the landlord owns outright

Pure gross vs. full-service gross, and the gross-up exposure hiding in the label

Listings use "gross" loosely, and at least three different deals carry it. The difference decides whether the tenant ever sees an expense statement.

• ✓Pure gross — one rent figure, no reimbursement machinery anywhere in the lease, the landlord absorbs every operating dollar. Most common in small buildings and legacy leases.
• ✓Full-service gross — the landlord's obligation is an enumerated expense list, and the lease separately names what is billed to the tenant. "Full service" means those categories are covered, not that the tenant pays nothing else.
• ✓Advertised as gross, drafted as modified gross — a rent article that says gross "except" the tenant pays increases over a base year or a stated stop. If the lease mentions a base year, a stop, or "in excess of," it is not gross whatever the listing says.
• ✓Gross-up exposure — a gross-up clause scales variable costs to a stipulated occupancy, commonly 95%, before allocation. Under a pure gross lease the tenant never sees that math, which is why the clause gets waved through in review. The moment the lease carries any reimbursement at all — a tax stop, a carved-out basket, a renewal that converts the structure — that negotiated percentage starts driving the tenant's bill.

Worked example: $28.00/SF gross vs. $20.00/SF NNN plus $7.50/SF OpEx

A 10,000 SF suite in a 100,000 SF building — a 10% pro-rata share. Deal A is a full-service gross lease at $28.00/SF with a 3% annual escalation. Deal B is NNN at $20.00/SF base with the same escalation plus a $7.50/SF expense load growing 6% a year. All figures are hypothetical.

In year one the gross deal costs $280,000 ($28.00 x 10,000 SF) and the NNN deal costs $275,000 all-in — $200,000 of base rent plus $75,000 of pass-throughs, or $27.50/SF. The gross tenant pays $5,000 more to buy the risk transfer.

By year ten the arithmetic has moved the other way. Gross rent escalates to $36.53/SF ($365,300); NNN base rent reaches $26.10/SF while the expense load has grown to $12.67/SF, an all-in $38.77/SF ($387,700) — roughly $22,400 more in that year alone. Over ten years the gross tenant finishes about $71,400 ahead, with the crossover in year four. Re-run it with expense growth at 3% instead and the gross premium never pays off: a gross lease is a bet on expense inflation.

That assumption explains why gross leases drift away at renewal. A landlord that has lived through a reassessment and an insurance spike rarely writes the next term the same way, and pass-through creep enters through the option language: option rent quoted "gross, subject to Tenant paying Operating Expenses in excess of the Base Year" converts the deal to modified gross without the word gross ever leaving the listing.

Abstracting a gross lease: the fields that decide the economics

• ✓Which expenses are included — the landlord's obligation list and the tenant-billed carve-out list. "Gross" with no enumerated basket is not a simple deal, it is an incomplete abstract.
• ✓Base year — a genuine gross lease has none; one anywhere in the rent or expense article means the structure is modified gross, with a second charge stream to model.
• ✓Gross-up clause — the stipulated occupancy percentage, the categories it touches, and whether it reaches any reimbursement that exists under the lease.
• ✓Expense stop rate — where the lease states a $/SF absorbed amount instead of a base year, record the rate, whether it resets at renewal, and whether taxes carry their own stop.
• ✓Renewal structure — the highest-value field: does option rent stay gross, or convert to NNN or modified gross at then-current expenses? That single sentence decides whether the deal is still gross in year six.