The terms of net leases are significantly different from those of gross leases, pursuant to which many multi‑tenant office, industrial, and retail properties are leased. Unlike a typical gross lease, net leases typically require the tenant to pay substantially all of the operating costs associated with the leased property.
Net leases are generally either “double-net” or “triple-net.” In a double-net lease, the tenant is generally responsible for routine maintenance costs, utilities, taxes, and insurance, and the owner is generally responsible for expenses incurred for structural repairs. In a triple-net lease, the tenant is generally responsible for all costs associated with a property, including maintenance, utilities, taxes, insurance, and structural repairs. In addition, the term of a typical net lease, often in the range of 10 to 15 years, is longer than that of the typical gross lease. The typically longer lease term helps reduce tenant improvements, brokerage commissions, and re‑tenanting costs over a given period of time. Finally, a net lease often has contractually specified rent increases throughout its term and is guaranteed by the corporate tenant. As a result, cash flows from properties net leased to creditworthy tenants are often more stable than those generated by multi‑tenanted properties leased under gross leases.