“What’s a triple net lease?” is one of the most common questions I hear from business owners stepping into their first commercial space. And honestly, most of the answers they’ve already Googled are either too textbook-dry or too vague to be actually useful. They define the term. They don’t tell you what it means for your wallet in Los Angeles.
Here’s why it matters more in LA than almost anywhere else: property taxes, building insurance, and maintenance costs in this market are among the highest in the country. The gap between a NNN lease and a gross lease can easily translate to tens of thousands of dollars per year — sometimes more, depending on the property and submarket. Choosing the wrong structure, or not fully understanding the one you signed, can quietly erode your cash flow for the entire length of your lease term. I’ve seen plenty of tenants get caught off guard by lease structures they thought they understood. This article is my attempt to fix that — with real numbers, plain language, and zero jargon.
Key Takeaways
- A triple net lease (NNN) means you pay base rent plus property taxes, insurance, and CAM — in Los Angeles, those add-ons can run $0.75–$1.50+/SF, making your real monthly cost significantly higher than the listed rate.
- Gross leases look more expensive up front, but they offer budgeting certainty — critical for first-time commercial tenants navigating LA’s unpredictable operating cost environment.
- California’s SB 1103 (effective January 2025) gives qualified small business tenants new rights around notice periods and lease transparency — another reason to work with a broker before signing anything.
What Is a Triple Net Lease, Really?
Let’s start with the basics, because the definition matters before we get into the strategy.
A triple net lease — commonly written as NNN — means you pay two things every month: a base rent amount, plus your proportionate share of three operating expenses tied to the property. Those three expenses are property taxes, building insurance, and common area maintenance (CAM). Together, they make up the “three nets,” and they get billed to you on top of your base rent — either monthly as an estimate or reconciled annually against actual costs.
The landlord’s appeal here is obvious. When all operating costs are passed to the tenant, the landlord’s income becomes predictable and their asset management becomes largely passive. That’s why NNN leases are the preferred structure among commercial real estate investors, particularly for single-tenant, long-term properties like retail strip centers, standalone medical buildings, and franchisee-occupied locations. For an investor executing a 1031 exchange or building a long-term income portfolio, an absolute NNN lease on a quality asset is as low-risk and consistent as it gets in commercial real estate.
But here’s what consistently trips up first-time tenants: the base rent listed on a flyer or LoopNet is not your full monthly cost. If a listing reads “$2.25/SF NNN,” that’s only the starting point. The NNN charges stack on top — and in Los Angeles, they’re not a rounding error.
What NNN Charges Actually Look Like in LA
Based on current market conditions and what I’m actively seeing across Glendale, Pasadena, Burbank, and the San Fernando Valley in 2026, here’s a realistic NNN expense breakdown for a mid-tier retail or office property:
- Property taxes: ~$0.35–$0.55/SF per year
- Building insurance: ~$0.15–$0.25/SF per year (higher in some areas following wildfire risk reassessments across LA County)
- CAM (parking lot maintenance, landscaping, exterior lighting, shared area upkeep): ~$0.25–$0.70/SF per year
Total NNN add-on: roughly $0.75–$1.50+/SF annually, depending on property age, condition, location, and how the landlord manages the building.
| NNN Expense Component | Typical LA Range (Per SF/Year) | Who Controls It |
|---|---|---|
| Property Taxes | $0.35 – $0.55/SF | County Assessor (you have no control) |
| Building Insurance | $0.15 – $0.25/SF | Landlord’s policy (rising post-wildfire) |
| Common Area Maintenance (CAM) | $0.25 – $0.70/SF | Landlord manages, tenant pays share |
| Total NNN Add-On | $0.75 – $1.50+/SF | Reconciled annually |
That math matters. A tenant who sees “$2.00/SF NNN” and budgets $2.00/SF is going to get a very unpleasant surprise at their first annual reconciliation. The actual effective rent in most LA submarkets lands closer to $2.75–$3.50/SF once NNN charges are factored in — and those charges are not fixed. They’re reconciled every year against actual expenses, and they can increase as costs rise. In a market where insurance premiums have climbed sharply and property tax reassessments are triggered by sale events under California’s Proposition 13 rules, that upward pressure is very real and very consistent.
What Is a Gross Lease?
A gross lease — also called a full-service lease — flips the entire structure. You pay one flat monthly rate, and the landlord absorbs property taxes, building insurance, and maintenance out of that amount. Your monthly obligation is fixed, and the landlord manages all operating cost exposure on their end. What you negotiate is what you pay.
Gross leases are most commonly found in multi-tenant office buildings, Class A and Class B professional spaces, and certain medical office parks throughout LA. If you’re looking at a suite in a mid-rise Pasadena office building, a creative office campus in Culver City, or a professional floor in a Century City tower, you’re almost certainly looking at a gross or modified gross structure.
The Expense Stop Catch
Here’s the fine print that most tenants — and even some less experienced brokers — overlook: nearly every gross lease in Los Angeles includes an expense stop or base year clause.
The way it works is straightforward. The landlord agrees to cover operating expenses up to a defined baseline — typically the actual costs recorded during Year 1 of your lease. If expenses stay below that line, you pay nothing extra. But if operating costs rise above that threshold in Year 2, 3, or beyond, the excess amount gets passed through to you as a tenant.
In practice, this means a gross lease can effectively start behaving like a partial NNN lease over time — especially in a market like LA where insurance premiums have been rising year over year and property taxes on recently sold buildings can jump significantly. “Gross lease” does not automatically mean “fully fixed cost lease.” It means fixed cost up to a ceiling, and that ceiling is often hit faster than tenants anticipate.
Modified Gross: The Hybrid Option
A modified gross lease is the middle ground between NNN and full-service gross. You generally pay one flat rent amount, but certain specific line items — most commonly utilities and janitorial services — are billed to you separately. This structure is common in smaller multi-tenant buildings, flex spaces, and creative office conversions across the Valley, East LA, and some Westside submarkets.
Worth noting: many spaces listed as “gross” in marketing materials are actually modified gross once you open the lease document. Reading the lease — not just the listing sheet — is always where the real structure gets revealed.
NNN vs. Gross — The Real LA Numbers
This is the section that actually helps you make a decision. Let’s walk through a realistic side-by-side scenario using a 1,500 SF retail/office space in Glendale in 2026.
| NNN Lease | Gross Lease | |
|---|---|---|
| Base Rent | $2.25/SF | $3.50/SF (all-in) |
| NNN Charges (Year 1) | $0.85/SF | Included |
| Effective Rent/SF | $3.10/SF | $3.50/SF |
| Monthly Cost | $4,650/mo | $5,250/mo |
| Annual Cost | $55,800 | $63,000 |
On paper, the NNN lease saves you $600 per month in Year 1. For a small business watching every dollar, that’s a meaningful difference — it could cover a part-time employee, a marketing budget, or simply give you more operating runway.
Now fast-forward to Year 3. Property taxes on the building tick up following a sale. LA’s insurance market continues tightening. The landlord conducts the annual CAM reconciliation and raises NNN charges to $1.10/SF.
| NNN Lease (Year 3) | Gross Lease (Year 3) | |
|---|---|---|
| Base Rent | $2.25/SF | $3.50/SF |
| NNN Charges | $1.10/SF | Up to expense stop |
| Effective Rent/SF | $3.35/SF | $3.50–$3.65/SF |
| Monthly Cost | $5,025/mo | $5,250–$5,475/mo |
The gap has nearly closed. By Year 3, the NNN tenant is paying close to what the gross lease tenant is paying — but with far less predictability. The gross lease tenant had a reliable number to budget around. The NNN tenant faced two annual reconciliation increases and had to absorb those adjustments mid-lease.
The real takeaway: NNN leases appear cheaper at signing but carry meaningful cost exposure over the life of the term. Gross leases appear more expensive upfront but deliver budgeting certainty that has genuine financial value for a growing business. Neither structure is inherently better — the right choice depends on your cash position, your risk tolerance, and how long you plan to stay in the space.
Mike’s Decision Framework: Which Lease Is Right for You?
After 18+ years working with tenants and landlords across Greater Los Angeles, here’s how I actually think through lease structure depending on the business:
First-time tenant or small business with lean cash flow → Lean toward a gross or modified gross lease. The predictability outweighs the higher base rate. When you’re still figuring out your revenue rhythm in a new space, the last thing you need is variable operating cost surprises hitting your P&L every spring.
Experienced operator comfortable managing variable costs → NNN can absolutely work in your favor. Push for a cap on annual NNN increases — 3–5% annually is a reasonable and widely accepted ask in the current LA market — and you get the benefit of lower base rent with controlled exposure.
Medical or dental practice → NNN is the dominant structure for standalone medical buildings and retail-medical locations throughout LA. That said, the CAM provisions in medical NNN leases can be complex, especially in multi-tenant medical parks. Negotiate hard for increase caps and make sure the lease clearly distinguishes routine maintenance from capital-level improvements.
Retail tenant in a multi-tenant strip center → NNN is the standard across virtually every retail center in the LA market. The key is in the CAM language. Some landlords attempt to include capital expenditures — roof replacements, full HVAC overhauls, major parking lot repaving — inside the CAM bucket. They shouldn’t. Capital improvements should be amortized over the useful life of the asset, not billed as an annual operating expense to tenants.
Office tenant in a Class A or B building → Expect a gross lease with an expense stop. Your primary leverage point in negotiation is the base year. If the building has lower-than-normal occupancy in Year 1, the expense stop will be set artificially low, which means pass-throughs kick in faster. Push to anchor the base year to a fully occupied, normalized operating year.
Red Flags to Watch in Any Commercial Lease
Before you sign anything, review these provisions carefully — or have a broker review them for you:
- Uncapped NNN increases with no annual ceiling
- Vague CAM definitions that give the landlord broad discretion over what qualifies as a shared expense
- No tenant audit rights — you should always have the contractual ability to verify actual operating cost figures
- Capital improvements bundled into CAM rather than amortized separately
- Gross leases with base year clauses set during low-occupancy periods, which lowers the expense stop baseline and accelerates pass-throughs
- Administrative or management fee markups on NNN charges — some landlords add 10–15% overhead on top of actual costs
One more thing worth calling out for 2026: California’s SB 1103, which took effect January 1, 2025, introduced new commercial tenant protections specifically for small businesses. Qualified tenants — including microenterprises with fewer than 5 employees and small restaurants with fewer than 10 — are now entitled to 90-day advance notice before rent increases and have the right to receive lease documents translated into their preferred language. These rights apply regardless of whether you’re in a NNN or gross lease, and they’re worth knowing before you negotiate.
FAQs
Is a triple net lease good or bad?
Neither — it depends entirely on your situation. NNN leases work well for experienced operators who want lower base rent and can manage variable operating costs, but they can strain first-time tenants who aren’t prepared for annual reconciliation surprises.
Who pays for roof repairs in a NNN lease?
In a true NNN lease, the tenant is typically responsible for roof and structural repairs — which is exactly why negotiating a cap on major repair costs and clearly defining capital vs. maintenance expenses before signing is so important.
Can I negotiate NNN charges?
Absolutely, and you should. Push for annual NNN increase caps (3–5% is market standard), explicit exclusion of capital improvements from CAM, and the right to audit actual expense figures annually — all of these are negotiable and commonly accepted in the LA market.
What’s a normal NNN cost in Los Angeles right now?
In 2026, NNN charges across Greater LA typically run $0.75–$1.50+/SF annually. Retail strips in Glendale, Burbank, and Pasadena generally land between $0.85–$1.10/SF, with older properties or recently sold buildings trending toward the higher end due to tax reassessments and deferred maintenance.
Do I need a broker to review a NNN lease?
Yes — a tenant-side commercial broker who knows the LA submarkets can benchmark proposed NNN charges against comparable properties and negotiate terms that could save you thousands per year. In most cases, the landlord pays the broker’s fee, so there’s genuinely no cost to you as a tenant to have experienced representation at the table.
Ready to Figure Out Which Lease Works for You?
Choosing between NNN and gross isn’t something you should have to figure out alone — especially in a market as complex and cost-intensive as Los Angeles. If you’re looking at commercial space and want someone to run the real numbers with you before you sign anything, let’s talk.
