Glossary / Lease terms and deal stages
Also known as: Flat lease
A gross lease is a commercial lease in which the tenant pays a single rent amount and the landlord pays the property's operating expenses, such as taxes, insurance, and maintenance, out of that rent. Because expenses are built in, the quoted rent is higher than a net rent for the same space.
The SIOR lease glossary defines a gross lease as one "in which the tenant pays a flat sum for rent out of which the landlord must pay all expenses such as taxes, insurance, maintenance, and non sub-metered utilities." Wikipedia describes two common variants: the Modified gross lease and the Full service gross lease.
Wikipedia notes that landlords typically charge higher rent under a gross lease to recover their own expenses, rather than passing those costs to tenants as under a net lease.
Lease structure changes the rent figure your commission may be based on. Under a gross lease, the rent already includes the landlord's expense recovery. Under a Triple net lease (NNN), those costs are billed separately and the base rent is lower. If your commission is a percentage of rent, a gross deal and a net deal with the same economics can produce different fees.
Whether that difference is real depends on your commission agreement. A CBRE agreement with the State of Michigan used "the total rent over the term," while a Grubb & Ellis commission agreement used aggregate base rent.
When comparing gross and net deals, run your commission on the actual rent definition in your agreement, not the headline rate.
For example, consider a hypothetical 5,000 square foot space for 5 years at $45 per square foot gross, or $33 per square foot net plus about $12 in expenses. Total gross rent is $1,125,000 and total net base rent is $825,000. At a hypothetical 4% rate on rent, that is $45,000 versus $33,000.
