Expenses Simplified


Learning commercial real property leasing practices takes time and repetition before most of us are truly comfortable with our level of understanding. Does the tenant pay this? Does the owner pay that? It varies per type of lease and is further complicated by misunderstanding of terms. This post simplifies that learning process by focusing only on the expenses the ownership pays, since that is what directly impacts value to a prospective purchaser.

Imagine a glass containing all of the individual property expenses. The owner can pay the full glass (all the expenses) or a partial glass (varying degrees between full and empty). Here are the categories of expenses for real property ownership and use, per type of lease:

Full Glass   [ Full Service Gross Lease ]
Owner pays all the expenses listed below including management:

$  Cleaning & janitorial
$  Insurance
$  Maintenance exterior including CAM
$  Maintenance interior
$  Management
$  Real estate tax
$  Structural maintenance including CAM
$  Utilities

Half Glass  
[ Modified Gross Lease ]
Owner pays some combination of the expenses listed above.

Nearly Empty Glass  
[ Triple Net Lease ]
Owner pays only management.

Empty Glass   [ Absolute Net Lease ]
Owner pays no expenses.

Modified Gross Leases that add one or two expenses in addition to the Nearly Empty Glass (Triple Net) are often called Single Net or Double Net, but the terminology is less common than the basics above.