What is the difference between a net lease and a gross lease in NYC retail?

In a gross lease, the landlord pays property taxes, insurance, and building maintenance, and the tenant pays one base rent figure. In a net lease, the tenant pays base rent plus a proportional share of operating expenses including real estate taxes, insurance, and common area maintenance. Most NYC retail leases are modified gross, somewhere between the two structures. True gross leases are rare in retail. True triple net leases are most common in standalone properties.

How much do NYC retail lease passthroughs typically add to base rent?

NYC retail lease passthroughs typically add $5 to $25 per square foot annually on top of base rent, depending on the building and lease type. Older buildings with higher real estate taxes can have larger passthroughs. Tax passthroughs increase every year as NYC real estate taxes rise. Operating expense passthroughs are usually capped at 3 to 5 percent annual increases. Always request the last three years of actual passthrough history before signing.

What is a base year in a NYC retail lease?

The base year in a NYC retail lease is the year against which future passthrough increases are measured. A 2026 base year means the tenant only pays for tax and operating expense increases above 2026 levels. A 2018 base year on a 2026 lease means the tenant inherits eight years of historical increases. The base year significantly affects the tenant's exposure to passthroughs. Negotiate for a current base year.

Can you negotiate passthroughs in a NYC retail lease?

Yes, passthroughs in a NYC retail lease are negotiable. Three structural items matter most. First, the base year against which increases are measured. Second, caps on controllable operating expenses like CAM and management fees. Third, exclusions from passthroughs such as capital improvements that primarily benefit the landlord. Real estate taxes are typically uncapped because they are non-controllable. CAM and operating expenses should be capped at a defined percentage.

How do you calculate effective occupancy cost in a NYC retail lease?

Effective occupancy cost in a NYC retail lease equals base rent plus passthroughs plus utilities plus tenant insurance plus any percentage rent. To compare two LOIs fairly, calculate this total for each, then subtract the value of free rent and TI allowance amortized over the lease term. This gives you the true effective monthly cost. Two LOIs with identical base rent can have $15 to $25 per square foot of difference in total occupancy cost.

← All Posts

Tenant & Landlord EducationMay 21, 20264 min read

Net Lease vs Gross Lease: What NYC Retail Tenants Need to Know

The lease type changes your real occupancy cost more than the rent number does. Here is how to read both and not get burned by passthroughs.

Jack Baum·Gravity Realty Group

Most retail tenants in NYC focus on the base rent number. The base rent is not your real occupancy cost. The lease type is. Pick the wrong structure and you can end up paying $10 to $25 more per square foot than the rent on the LOI suggests.

Here is how net leases and gross leases actually work in NYC retail. And what you should actually negotiate.

Gross lease: one number, mostly

In a gross lease, the landlord pays property taxes, building insurance, and most building maintenance. The tenant pays one base rent figure. You still pay for your own utilities and your own interior maintenance. But the big building costs are on the landlord side.

Gross leases are more common in older Manhattan office buildings than in retail. In retail, true gross leases are rare. What landlords sometimes call gross is more often modified gross. Read the fine print.

Net lease: base rent plus your share of building expenses

In a net lease, you pay base rent plus a proportional share of the building's real estate taxes, insurance, and common area maintenance. The shorthand is NNN. Triple net. You pay all three.

On an older NYC building with high real estate taxes, the passthroughs can add up fast. I have seen NNN charges run $15 to $25 per square foot on top of base rent. That is a 10 to 15 percent swing on your occupancy cost.

The math gets worse over time. Real estate taxes go up every year in NYC. Your share goes up with them. The base rent escalation is the headline number. The tax passthrough is the silent one.

Modified gross: the most common NYC retail structure

Most NYC retail leases land somewhere in between. The tenant pays base rent and a percentage of any tax increase above a base year. The base year matters. A 2026 base year is much better than a 2018 base year if you are signing today.

Common area maintenance might or might not be included. Insurance might be passed through. The exact mix is negotiable.

What to actually negotiate

Three things. First, get the last three years of actual operating expense and tax history. Not the budget. The actual. Your broker should pull these. If they cannot, ask the landlord for them in writing.

Second, negotiate the base year. The base year sets your zero point for passthroughs. A current base year limits your exposure to historical tax increases.

Third, cap the controllable expenses. Common area maintenance, management fees, and other operating expenses should have a cap on year over year increases. Real estate taxes are usually uncapped because they are non-controllable. CAM should not be.

The bottom line

The base rent on your LOI is incomplete. Calculate your full occupancy cost. Base rent plus passthroughs plus utilities plus your share of insurance. That is the number to compare across spaces. Two LOIs with the same base rent can have $20 per square foot of difference in total cost.

Most of the lease terms tenants get burned on are not the headline economics. They are the structural terms that determine what the headline economics actually mean over the life of the lease.

Frequently asked questions

What is the difference between a net lease and a gross lease in NYC retail?: In a gross lease, the landlord pays property taxes, insurance, and building maintenance, and the tenant pays one base rent figure. In a net lease, the tenant pays base rent plus a proportional share of operating expenses including real estate taxes, insurance, and common area maintenance. Most NYC retail leases are modified gross, somewhere between the two structures. True gross leases are rare in retail. True triple net leases are most common in standalone properties.
How much do NYC retail lease passthroughs typically add to base rent?: NYC retail lease passthroughs typically add $5 to $25 per square foot annually on top of base rent, depending on the building and lease type. Older buildings with higher real estate taxes can have larger passthroughs. Tax passthroughs increase every year as NYC real estate taxes rise. Operating expense passthroughs are usually capped at 3 to 5 percent annual increases. Always request the last three years of actual passthrough history before signing.
What is a base year in a NYC retail lease?: The base year in a NYC retail lease is the year against which future passthrough increases are measured. A 2026 base year means the tenant only pays for tax and operating expense increases above 2026 levels. A 2018 base year on a 2026 lease means the tenant inherits eight years of historical increases. The base year significantly affects the tenant's exposure to passthroughs. Negotiate for a current base year.
Can you negotiate passthroughs in a NYC retail lease?: Yes, passthroughs in a NYC retail lease are negotiable. Three structural items matter most. First, the base year against which increases are measured. Second, caps on controllable operating expenses like CAM and management fees. Third, exclusions from passthroughs such as capital improvements that primarily benefit the landlord. Real estate taxes are typically uncapped because they are non-controllable. CAM and operating expenses should be capped at a defined percentage.
How do you calculate effective occupancy cost in a NYC retail lease?: Effective occupancy cost in a NYC retail lease equals base rent plus passthroughs plus utilities plus tenant insurance plus any percentage rent. To compare two LOIs fairly, calculate this total for each, then subtract the value of free rent and TI allowance amortized over the lease term. This gives you the true effective monthly cost. Two LOIs with identical base rent can have $15 to $25 per square foot of difference in total occupancy cost.