If you own an office or retail building in Glendale or Pasadena, one of the first questions a tenant (or their broker) will ask is: “Is that rent gross or triple net?” The answer changes what the tenant really pays, what you really net, and who carries the risk when property taxes, insurance, or utility costs go up.
This guide explains the main commercial lease types you’ll see in the Los Angeles market, how each one splits operating expenses between landlord and tenant, and how to choose the right structure for your building.
Why the Lease Structure Matters
Two buildings can advertise the same asking rent and still produce very different income. The difference is in who pays the building’s operating expenses, which usually include:
- Property taxes
- Building insurance
- Common area maintenance (CAM): janitorial for shared areas, landscaping, parking lot upkeep, elevators, security, management fees
- Utilities: electricity, water, gas, trash
- Repairs, from routine maintenance up to roof and structural work
The lease type decides which of these costs sit with you and which pass through to the tenant. It also decides who absorbs the increase when those costs rise over a five- or ten-year lease.
Full-Service Gross Lease
In a full-service gross lease, the tenant pays one rent amount and the landlord pays the building’s operating expenses out of it: taxes, insurance, CAM, and usually utilities and janitorial too.
Where you’ll see it: Multi-tenant office buildings. Much of the office space along Brand Boulevard in Glendale and in the Pasadena office corridors is marketed on a full-service basis.
For the landlord: The rent is simple to market and easy for tenants to compare. The risk is that rising expenses come out of your income. To limit this, most full-service leases include a base year clause. The tenant pays its share of any increase in operating expenses above the costs in the first year of the lease.
For the tenant: Costs are predictable, with fewer surprise bills.
Modified Gross Lease
A modified gross lease sits between gross and net. Rent covers some operating expenses, and the tenant pays others directly. A common setup is that the landlord covers taxes, insurance, and common area costs, while the tenant pays its own suite’s electricity and janitorial.
Where you’ll see it: Smaller office buildings, creative and flex space, and older multi-tenant properties.
For the landlord: It’s flexible. You can tailor which costs pass through to suit the building and the tenant. The key is spelling out exactly who pays for what, because vague expense language is one of the most common sources of landlord-tenant disputes.
Triple Net (NNN) Lease
In a triple net lease, the tenant pays base rent plus its share of the three “nets”: property taxes, insurance, and common area maintenance. The landlord typically estimates these costs, bills the tenant monthly, and reconciles against actual costs once a year.
Where you’ll see it: Retail, restaurants, industrial buildings, and single-tenant properties. NNN is the standard structure for most retail along Colorado Boulevard and Lake Avenue and across the San Fernando Valley industrial market.
For the landlord: Your net income is more stable because rising expenses pass through to tenants. NNN properties are also attractive to investors if you plan to sell the building later.
For the tenant: The base rent looks lower, but the total cost varies from year to year. Smart tenants will ask for the current NNN charges and the past few years’ reconciliations, so have that information ready.
A California-Specific Note: Proposition 13
Under Proposition 13, California property taxes are generally reassessed when a property sells. In a NNN lease, a sale can significantly raise the property tax bill that passes through to tenants. Many tenants now negotiate a “Prop 13 protection” clause limiting their share of a reassessment-driven increase. If you’re thinking of selling within the lease term, it’s worth understanding how this clause affects your tenants and buyers.
Absolute Net (Bondable) Lease
An absolute net lease goes one step further than NNN: the tenant is responsible for essentially every cost of the property, including major structural repairs and roof replacement. These are most common with national credit tenants in single-tenant buildings, such as pharmacies, banks, and fast-food pads, and they are prized by passive investors.
Quick Comparison
| Lease type | Tenant pays | Landlord pays | Common for |
|---|---|---|---|
| Full-service gross | One rent amount (plus increases over the base year) | Taxes, insurance, CAM, usually utilities and janitorial | Multi-tenant office |
| Modified gross | Rent plus some expenses (often utilities and janitorial) | Remaining expenses, as negotiated | Smaller office, flex, creative space |
| Triple net (NNN) | Rent plus taxes, insurance, and CAM | Usually roof and structure | Retail, industrial, single-tenant |
| Absolute net | Rent plus essentially all costs, including structural | Very little | Single-tenant credit properties |
How to Choose the Right Lease Type for Your Building
There’s no single right answer. The best structure depends on:
- Your property type. Tenants expect certain structures. Offering a NNN lease in a market where comparable office buildings are full-service can make your space look more expensive, even when it isn’t.
- Your competition. Prospective tenants compare your space against similar buildings nearby. Pricing should be presented in a way they can compare easily.
- Your risk tolerance. Gross leases give you more control over the building and its costs, but more exposure to rising expenses. Net leases shift that exposure to the tenant.
- Your plans for the building. If you may sell, a rent roll with clean, well-documented NNN leases and reliable reconciliations can support a stronger sale price.
Whatever the structure, the details matter: how operating expenses are defined, what is excluded, how management fees are calculated, caps on controllable expenses, and audit rights. These clauses are often where a lease makes or loses money over its term.
Talk to a Local Commercial Listing Broker
Iliad Real Estate Group helps building owners in Glendale, Pasadena, Burbank, and across greater Los Angeles market and lease their commercial space. We can help you price your space against the competition, choose a lease structure that fits your goals, and negotiate terms that protect your income. Learn more about our landlord representation services, see our guide to tenant improvement allowances for landlords, or contact us to talk about your building.
This article is for general information only and is not legal or tax advice. Lease terms vary, so consult a real estate attorney or tax professional about your specific situation.
About the Author
Vardui Nalbandyan is a commercial real estate agent with Iliad Real Estate Group in Pasadena, representing building owners and office tenants in Glendale, Pasadena, and greater Los Angeles. California DRE License #02025314.