August 26, 2026
- Gross leases offer tenants more predictable occupancy costs, while landlords absorb most operating expenses.
- Percentage leases connect rent to tenant sales and are most common in retail.
- Net leases shift more property expenses to tenants, with NNN structures placing the greatest expense responsibility on the tenant.
What are NYC commercial tenants actually paying for?
When we talk with commercial tenants and property owners across New York City, the conversation often starts with the rent.
A tenant sees a space advertised at $35 per square foot and thinks, “I can afford that.”
Then the other numbers show up.
Property taxes. Insurance. Utilities. Common Area Maintenance (CAM).
Suddenly, that $35 asking rent does not tell the whole story.
That is why understanding the lease structure matters. Two properties with the same asking rent can have very different occupancy costs depending on who pays the building expenses.
In NYC, where office, retail, industrial, and mixed-use properties can have very different operating structures, the lease can be just as important as the asking rent.
So what are the three most common commercial lease structures we see?
1. What is a full-service Gross Lease?
A full-service gross lease is designed around simplicity.
The tenant generally pays one rent amount, while the landlord covers most major building expenses such as property taxes, insurance, maintenance, and common area maintenance.
Think about an office tenant leasing 5,000 square feet in Manhattan.
Instead of worrying every month about the building’s tax bill, insurance premium, elevator maintenance, or lobby expenses, the tenant pays an agreed rent and has more predictable occupancy costs.
That predictability is the biggest advantage.
When does a gross lease make sense?
Gross leases are commonly associated with office buildings and other multi-tenant properties.
For tenants, the appeal is budgeting.
For landlords, the tradeoff is expense exposure.
If building expenses increase significantly, the landlord may absorb more of that increase unless the lease includes an expense stop, escalation, or other pass-through mechanism.
That is why we always tell tenants to look beyond the headline rent.
A $40 per square foot gross lease and a $32 per square foot net lease are not automatically cheaper or more expensive. We need to calculate the actual occupancy cost.
What is a modified gross lease?
This is where things get more interesting.
A modified gross lease splits expenses between the landlord and tenant.
The tenant may pay base rent plus utilities, janitorial services, or certain operating expenses. Depending on the agreement, the tenant may also contribute toward taxes, insurance, or other costs.
For NYC tenants, this structure can be a middle ground between predictability and expense sharing.
2. What is a Percentage Lease and why is it common in retail?
A percentage lease connects part of the rent to the tenant’s sales.
The tenant pays a base rent and then pays an agreed percentage of gross sales after meeting a defined breakpoint.
The percentage commonly falls around 5% to 10%, depending on the agreement and property.
Picture a retail tenant in a busy NYC shopping corridor.
The business has a slower year, so sales decline. Under a percentage structure, the variable rent component may decline as well.
Then sales take off.
The landlord participates in that upside.
This structure can align the interests of both sides because the landlord benefits when the tenant performs well.
Why does the breakpoint matter?
The breakpoint determines when the percentage rent kicks in.
For example, imagine a lease with a $1 million breakpoint and a 7% percentage rent.
If sales remain below the breakpoint, the tenant may only pay the base rent.
If sales exceed the breakpoint, the percentage component can become payable according to the lease terms.
For retail investors and brokers, that makes tenant sales performance an important part of underwriting.
A retail property with strong tenants and growing sales can look very different from one where tenants consistently struggle to reach their sales thresholds.
3. What is a Net Lease and why does NNN matter?
Net leases shift more property expenses to the tenant.
The tenant pays base rent and also assumes responsibility for specified expenses.
There are several versions, but the most common structures are single-net, double-net, and triple-net.
What does a single-net lease mean?
In a single-net lease, the tenant generally pays base rent plus its share of property taxes.
The landlord typically remains responsible for insurance and CAM, while the tenant also handles its own utilities and janitorial expenses.
Single-net leases are less common than other structures.
What does a double-net lease mean?
A double-net lease, often written as NN, generally requires the tenant to pay base rent plus its share of property taxes and insurance.
The landlord generally retains responsibility for CAM.
For a tenant, that means the advertised base rent still does not represent the entire occupancy cost.
What does a triple-net lease mean?
A triple-net lease, or NNN, pushes even more expenses to the tenant.
The tenant generally pays:
- Base rent
- Property taxes
- Insurance
- Utilities
- Janitorial expenses
This structure is particularly common with single-tenant retail, restaurants, and certain industrial properties.
Imagine a freestanding restaurant paying $30 per square foot in base rent.
That $30 is only part of the equation.
The tenant may also be responsible for taxes, insurance, CAM, utilities, and maintenance.
The actual occupancy cost could be materially higher.
That is why NNN properties require more than a quick comparison of asking rents.
How do different lease structures affect NYC commercial real estate?
1. How does the lease structure affect the tenant’s real occupancy cost?
This is where we see confusion most often.
A tenant comparing three spaces might see:
- Property A at $40 per square foot gross
- Property B at $34 per square foot modified gross
- Property C at $29 per square foot NNN
At first glance, Property C looks like the bargain.
But if taxes, insurance, CAM, utilities, and other expenses add another $10 per square foot, the effective occupancy cost could approach $39 per square foot.
The cheapest asking rent is not necessarily the cheapest lease.
2. How does the lease structure affect a landlord’s NOI?
For owners, lease structure directly affects income and expense exposure.
With a gross lease, the landlord generally carries more operating expenses.
With an NNN lease, more expenses are passed through to the tenant.
That can create a more predictable net operating income profile for certain investment properties.
For investors evaluating a building, we therefore look beyond asking rents and examine the actual lease economics.
3. How does the lease structure affect property valuation?
Lease structure can influence the quality and predictability of cash flow.
An investor buying a property with long-term NNN leases may have greater visibility into operating expenses than an investor buying a building where the landlord absorbs most expenses.
But that does not automatically make NNN better.
Tenant credit, lease term, renewal options, rent escalations, property condition, location, and remaining capital requirements all matter.
A 15-year NNN lease with a strong credit tenant is a very different investment from a short-term NNN lease with a financially weak tenant.
4. What happens when operating expenses increase?
This is particularly important in New York City.
Property taxes, insurance, utilities, repairs, labor, and maintenance can all affect operating costs.
In a gross lease, the landlord may carry more of that risk.
In a net lease, more of the increase can potentially be passed through to the tenant.
That means investors and tenants need to understand exactly what the lease allows the landlord to recover.
5. Why should NYC CRE brokers focus on the lease, not just the rent?
Because the lease is where the economics become real.
When we market a commercial property, the asking rent gets attention.
But serious buyers and tenants eventually ask:
- What else am I paying?
- Who pays the taxes?
- Who pays insurance?
- What does CAM include?
- Are there expense caps?
- Are there annual increases?
- What happens if operating costs rise?
- What repairs are the tenant responsible for?
Those questions can materially change the economics of a transaction.
What should NYC CRE brokers and investors do before comparing leases?
We recommend looking at the full occupancy and investment picture.
For tenants, calculate the estimated annual cost under each lease structure instead of comparing asking rents alone.
For landlords, understand which expenses are recoverable and whether the lease protects NOI from rising operating costs.
For investors, examine the lease structure alongside tenant credit, remaining lease term, rent escalations, renewal probability, capital expenditures, and property condition.
And for brokers, make the numbers easy to understand.
If a space is advertised at $30 per square foot NNN, do not assume the tenant understands what NNN means.
Explain the likely additional expenses.
If a property is $40 per square foot gross, explain what the tenant is getting in exchange for the higher base rent.
The goal is not simply to find the lowest rent.
It is to find the lease structure that makes sense for the property, the tenant, and the investment strategy.
What is the biggest takeaway about commercial lease structures?
Gross, percentage, and net leases all solve different problems.
Gross leases prioritize predictability.
Percentage leases connect rent to retail performance.
Net leases shift more operating expense responsibility to the tenant.
In NYC commercial real estate, we cannot evaluate a property based on the advertised rent alone.
The real question is always:
What will this space actually cost the tenant, and what will this lease actually produce for the owner?
That is where the lease structure becomes critical.
For brokers and investors, understanding that difference can lead to better underwriting, better negotiations, and ultimately better deals.
For more insights and commercial opportunities in New York City and Western Nassau County, follow us.
Andreas Nakos
Licensed Associate Real Estate Broker
917.886.6918
andreas.nakos@elliman.com
Steven Llorens
Licensed Associate Real Estate Broker
917.830.7091
steven.llorens@elliman.com
