Gross Lease

A gross lease is a commercial real estate lease in which the tenant pays a single all-inclusive rent amount and the landlord covers most or all of the property's operating expenses, including property taxes, insurance, and maintenance. The tenant writes one check each month for a flat sum, with no additional bills for building costs. Gross leases are most common in office buildings and some retail properties, where landlords prefer to maintain control over operating costs and present tenants with predictable all-in rental rates.

Think of a gross lease like a hotel room rate that includes all fees: one price covers everything, no itemized charges at checkout.

What the Landlord Covers Under a Gross Lease

The expenses included in a gross lease vary by contract, but a fully gross lease typically covers:

• Property taxes on the building and land
• Property insurance premiums for the building structure
• Common area maintenance, including hallways, elevators, lobbies, and parking
• Utilities for common areas and sometimes for the entire building
• Janitorial services for the building interior
• Structural and roof repairs
• Property management fees

The tenant typically still pays for their own in-suite electricity, telephone, and internet, plus any modifications they make to their space. The boundary between what the landlord covers and what the tenant pays depends on exactly what the lease document specifies.

Modified Gross Lease: The Most Common Variation

A pure gross lease where the landlord covers every single building expense is rare in practice. Most "gross" office leases are actually modified gross leases, where the landlord and tenant split certain expenses using a negotiated formula. Two common modified gross structures are:

Base year gross lease: The landlord covers all operating expenses as of a base year, typically the first year of the lease. If expenses rise above that base year amount in subsequent years, the tenant pays their proportional share of the increase. This structure gives tenants cost certainty in year one while protecting landlords from rising expenses over a multi-year lease.

Expense stop gross lease: The landlord covers expenses up to a specified dollar amount per square foot, and the tenant pays anything above that stop. A lease with an expense stop of $15 per square foot means the tenant absorbs any operating costs above that level.

Gross Lease vs. Net Lease

Why Tenants Prefer Gross Leases for Budgeting

A gross lease simplifies financial planning. You know your exact occupancy cost for the lease term without needing to budget separately for property tax escalations, insurance rate changes, or unexpected maintenance bills. This predictability is especially valuable for businesses that need tight expense controls, such as professional service firms that lease office space and price their services based on known overhead costs.

Sources

• https://www.federalreserve.gov/releases/z1/20250309/z1.pdf
• https://www.irs.gov/publications/p527
• https://www.boma.org/BOMA/Research/BOMA_Research.aspx