Quick Summary
The three main lease structures allocate operating costs differently. Under an NNN lease you pay base rent plus your full share of taxes, insurance, and maintenance, so a low quoted rate can hide $8–12 per square foot in add-ons. A full-service (gross) lease bundles everything into one higher figure. A modified gross lease splits the costs, often using a base year. The cheapest structure depends entirely on the building's real operating expenses, not the headline rate.
Why Listen to Us
Mike Wolson is a commercial real estate broker and an Illinois-licensed attorney, rated 4.9 across 71 Google reviews. Most brokers quote whichever rate looks lowest. As founder of +CRE, affiliated with Compass, he represents dental practices, healthcare providers, and service businesses across Chicago and its suburbs (tenants and buyers, never landlords) and reads every lease structure back to one number: total occupancy cost over the term.
The Structure Decides the Real Cost
Two Chicago suites quote very different rents: one at $24 per square foot, one at $34. The $24 space can easily be the more expensive of the two. The reason is not the rate; it is the lease structure behind it, which determines who pays for taxes, insurance, and building maintenance, and how those costs grow over time.
For a healthcare practice signing a multi-year lease, the structure matters more than the headline number. This guide breaks down the three common structures, shows how to compare them honestly, and explains which fits which situation.
This guide covers:
- How NNN, full-service, and modified gross leases differ
- Where the hidden costs live in each
- How the base year quietly shapes a modified gross lease
- How to compare structures on a single number
- Which structure fits which practice
NNN (Triple Net): You Pay the Building's Costs
An NNN lease quotes the lowest base rent because you pay almost everything else on top: your proportional share of property taxes, building insurance, and common area maintenance. Those add-ons commonly run $8 to $12 per square foot, so a $24 base rate is really $32–36 all-in. Each year, the landlord reconciles estimated charges against actual costs in a CAM reconciliation, which can produce a surprise bill.
NNN is the most common structure for medical office space in the Chicago suburbs. Its advantage is transparency, you see each cost component, but it puts the risk of rising operating expenses on the tenant. The defenses are an audit right on the reconciliation and a negotiated cap on annual increases.
Full-Service (Gross): One Number, Landlord's Risk
A full-service or gross lease is the opposite: the tenant pays a single, higher rent, and the landlord absorbs taxes, insurance, and maintenance. The appeal is predictability: your cost is fixed regardless of what happens to the building's expenses. The trade-off is that the landlord prices that risk into the rent, so the quoted number is higher, and you have less visibility into what you are actually paying for.
Full-service leases are less common for healthcare in the suburbs but appear in multi-tenant office parks and converted spaces. For a practice that values a flat, predictable monthly cost over transparency, it can be the right choice, provided the premium is not excessive.
Modified Gross: The Middle Path (and the Base Year Trap)
A modified gross lease splits the costs. Typically the tenant pays base rent plus some expenses (often utilities and in-suite janitorial) while the landlord covers the rest, frequently up to a base year level, with the tenant paying its share of increases above that base in later years.
The base year is where modified gross leases hide their cost. If a landlord sets an artificially low base year (one with unusually low expenses), the tenant's share of ‘increases’ starts sooner and runs higher. Confirm the base year reflects a normal, fully-assessed year, understand exactly which expense categories are included, and cap how fast your share can grow. Done right, modified gross offers more predictability than NNN without the full premium of a gross lease.
NNN vs. Full-Service vs. Modified Gross: A Direct Comparison
The three structures are best understood side by side, because the same building can be offered under any of them at very different headline rates:
- NNN: lowest base rent, tenant pays all operating costs on top, annual reconciliation, tenant carries expense-increase risk. Most transparent, most variable.
- Full-service (gross): highest base rent, landlord pays operating costs, no reconciliation. Most predictable, least transparent, includes a risk premium.
- Modified gross: mid-range base rent, costs split by a base year, tenant pays increases above base. A balance, but the base-year detail decides whether it is a good one.
The critical point: you cannot compare a $24 NNN quote against a $34 full-service quote by the rate. You have to build each out to total occupancy cost (base rent plus every add-on, projected across the term with escalations), and only then compare. This is the same discipline behind effective rent.
A Worked Example: The $24 Lease That Costs More
Consider two offers on comparable 3,000-square-foot suburban medical suites. Suite A is quoted NNN at $24 per square foot with $10 in estimated pass-throughs; Suite B is quoted full-service at $34 per square foot flat. On the surface Suite A looks $10 cheaper.
Run the math. Suite A's real first-year cost is $24 + $10 = $34 per square foot, already level with Suite B. But under NNN, the $10 in pass-throughs rises each year with actual expenses, and the annual reconciliation can add more. Suite B's $34 is fixed. Over a five-year term with 3% expense growth on Suite A's pass-throughs, Suite A ends up costing more in total, and carries the reconciliation risk on top. The tenant who chose Suite A on the $24 headline overpaid for the privilege of a lower-looking number. This is exactly why the structure, not the rate, decides the cost.
How to Compare Structures on One Number
To compare offers under different structures honestly, reduce each to total occupancy cost over the full term:
- Start with base rent for each year, applying the escalation schedule.
- Add every operating cost the tenant carries under that structure (taxes, insurance, CAM) projected forward.
- For modified gross, model the base year and your share of increases above it.
- Subtract concessions (free rent, TI allowance) to reach the net figure.
- Sum across the term and divide by the years to get a comparable annual cost.
Only that number tells you which structure actually costs less. The headline rate almost never does. For the mechanics of the concessions side of this, see our guide to tenant improvement allowances, and for the shared-cost mechanics, CAM charges and NNN leases.
Which Structure Fits Which Practice
None is universally best; the fit depends on the practice's priorities:
- NNN suits practices that want transparency and are prepared to audit reconciliations and negotiate caps, which is the majority of suburban medical tenants.
- Full-service suits practices that value a flat, predictable cost and will pay a modest premium for it, or that lack the bandwidth to monitor pass-through costs.
- Modified gross suits practices that want a balance (more predictability than NNN, less premium than gross) and are willing to scrutinize the base year.
The Mistakes That Cost the Most
Three errors recur when practices compare lease structures. The first is comparing headline rates directly, the single most expensive habit, because it ignores everything the structure allocates. The second is accepting a modified gross base year without checking whether it reflects normal expenses; a manipulated base year turns a fair-looking structure into an expensive one. The third is signing an NNN lease without an audit right or a cap on annual increases, leaving the tenant fully exposed to a landlord's operating expense growth and reconciliation.
All three share a root cause: treating the quoted rate as the cost. The rate is an input, not the answer. The answer is total occupancy cost over the term, and reaching it takes the same discipline whether the lease is NNN, gross, or modified gross.
How Plus CRE Helps
Plus CRE represents tenants only. Our lease negotiation and tenant representation work reduces every offer, whatever its structure, to the one number that matters: total occupancy cost over the term. Talk to us before you compare quotes, because the lowest rate is rarely the lowest cost.
Frequently Asked Questions
What is the difference between NNN and gross leases?
In an NNN lease, you pay a low base rent plus your share of taxes, insurance, and maintenance on top. In a gross (full-service) lease, you pay a single higher rent and the landlord covers those costs. NNN is more transparent but variable; gross is predictable but includes a risk premium.
Is a modified gross lease cheaper than NNN?
Sometimes, but it depends on the base year and which costs are split. A modified gross lease can offer more predictability than NNN, but a landlord's artificially low base year can make your share of expense increases start sooner and run higher. Compare total occupancy cost, not the structure label.
How do I compare leases with different structures?
Reduce each to total occupancy cost over the full term: base rent with escalations, plus every operating cost you carry under that structure, minus concessions like free rent and TI. Only that single number lets you compare a low NNN rate against a higher full-service one honestly.
What is a base year in a modified gross lease?
It is the first year whose operating-expense level sets the baseline the landlord covers; in later years you pay your share of increases above that base. Confirm it reflects a normal, fully-assessed year, since an artificially low base year raises your future costs.
