Description
In a volatile commercial real estate market, tenants and landlords alike are concerned with controlling expenses and allocating risk when entering a long-term commercial lease. How operating and occupancy expenses (and, therefore, risk) are allocated between the parties is governed by the lease structure: whether a gross, modified gross, or net lease. Counsel should be aware of the differences between the lease structures so they can best advise their clients.
In a gross lease, the tenant pays a single monthly rent payment while the landlord typically assumes all operating expenses, taking the risk that they have calculated sufficient rent amounts to cover return on investment as well as required repairs to the building or common areas and other variable expenses. A net lease requires the tenant to pay or contribute to the operating expenses and assume more risk, which usually results in a lower rent payment to the landlord. A modified gross lease is a hybrid version of the two in which both parties assume responsibility for certain expenses that vary depending on what is negotiated. This structure offers more flexibility to the parties and limitations can be negotiated into this structure to counter unpredictable expenses.
In addition to understanding how expenses are allocated based on the lease structure, consideration should be given to what constitutes occupancy and operating expenses so that these, as well as the responsible party, are clearly defined in the lease.
Listen as our expert panel discusses unique terms and considerations for each lease structure as well as how expenses are allocated in each. The panel will describe the risks and benefits to landlords and tenants for each structure and advise on best practices for negotiation and drafting.
Presented By
Mr. Nelson’s transactional practice focuses on representing corporate users of real estate in purchase and sale, leasing, construction, transactional due diligence, and ancillary real estate contract negotiations. He has deep experience in the acquisition, disposition, leasing and construction of office, industrial, GMP facilities, R&D facilities, and properties for the unique needs of clients in biotech, agtech, foodtech, electronics, robotics and autonomous vehicle development. Mr. Nelson has represented clients in numerous complex leasing and subleasing transactions and construction projects for millions of square feet of space, including multi-phased deliveries, sublease to direct lease roll overs, build-to-suit leases, and lease and sublease terminations and restructurings. He also has extensive experience in drafting and negotiating all types of ancillary agreements related to the transfer, use, construction, and ongoing operation and management of real property, including joint use agreements, transitional service agreements, easements, architect and construction agreements, listing agreements, and management agreements. He also uses his significant experience with corporate real estate to advise the firm's clients in due diligence investigations and negotiations ancillary to corporate mergers and acquisitions.
Ms. Stenman counsels commercial property owners and developers in sales, acquisitions and leasing transactions. In her extensive experience with commercial leasing, Ms. Stenman primarily assists landlords of office, industrial and retail assets in negotiating and drafting lease documents, including build to suit leases, and handling landlord/tenant matters. She is nimble and well-versed in the many issues that impact commercial leasing transactions and can anticipate challenges to set her clients up for success. Ms. Stenman’s practice is nationwide and concentrates predominately on large industrial projects such as warehouses, distribution centers and manufacturing facilities.
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This 90-minute webinar is eligible in most states for 1.5 CLE credits.
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Date + Time
- event
Wednesday, October 1, 2025
- schedule
1:00 p.m. ET./10:00 a.m. PT
I. Overview of current commercial real estate market
II. Terminology
A. Occupancy vs. operating expenses
B. Gross, modified gross, net, net net, triple net, absolute net
III. Lease structures
A. Gross
1. Expense allocation
2. Drafting considerations
3. Landlord pros and cons
4. Tenant pros and cons
B. Net
1. Types of net leases: net, net net, triple net, and absolute net
2. Expense allocation
3. Drafting considerations
4. Landlord pros and cons
5. Tenant pros and cons
C. Modified gross
1. Expense allocation
2. Drafting considerations
3. Landlord pros and cons
4. Tenant pros and cons
5. Major issues: roof, HVAC, compliance with laws
D. Other structures
1. Base year
2. Expense stop
IV. Selecting the right lease structure for your client in a volatile market
V. Best practices for negotiation and drafting
The panel will review these and other key issues:
- What is the difference between occupancy and operating expenses, and how are they typically allocated in each lease structure?
- What are the terms and considerations unique to each lease structure of which counsel and clients should be aware?
- How can landlords and/or tenants best mitigate their risk under each lease structure?
- Which lease structure is preferable to tenants and/or landlords in the current volatile commercial real estate market?
